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FDD Talk 2019: Culver’s Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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

  • Section I – Background information on the Culver’s franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Culver’s franchise, based on Item 7 of the company’s 2019 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Culver’s franchise, based on Items 5 and 6 of the company’s 2019 FDD
  • Section IV – Number of franchised and company-owned Culver’s outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
  • Section V – Presentation and analysis of Culver’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
  • 2018 average, median, high, and low sales for the 630 franchised Culver’s Restaurants open for the entire 12-month period ended December 31, 2018
  • 2018 average sales, food cost, paper cost, gross profit, salaries and wages, employee benefits, direct operating expenses, supplies and chemicals, utilities, general and administrative expenses, repairs and maintenance, advertising royalty, local advertising, service royalty, and income as a percentage of sales, for the 6 company-owned Culver’s Restaurants open for the entire 12-month period ended December 31, 2018

Section I – Background Information

19 Things You Need to Know About the Culver’s Franchise

Celebrates Opening of 700th Location

1.  In early March 2019, Culver’s celebrated the opening in Chandler, Arizona of its 700th store. According to the press release, Culver’s now has a presence in 25 states after the brand entered Alabama for the first time in 2018. Additionally, the chain opened 46 new restaurants in 2018, and there are plans for 50 more in 2019.

2.  Joe Koss, president and CEO of Culver’s, said, “As we celebrate our 35th anniversary this year, it’s amazing how far we’ve come since opening our very first restaurant in Sauk City, Wisconsin. I’m so happy for our franchisees, team members and our guests who have brought us to where we are today.”

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Highlights Family History in Newest TV Spot

3.  At the end of February 2019, Culver’s rolled out a new TV spot, featuring co-founder Craig Culver. In the commercial, Culver reveals his family’s supper club roots stating, “This is where it started for us, as far as the fish that we serve at Culver’s today.”

4.  The TV spot highlights Culver’s North Atlantic Cod, which is available as a sandwich or a dinner on the restaurant chain’s menu. Each filet is cooked to order, meaning that Culver’s team members don’t even start hand-battering the filet until after it’s ordered. This is a tradition that stretches back to the Culver family’s days running supper clubs like the Farm Kitchen in Baraboo, Wisconsin, where the TV spot was filmed. Fish fries are a Wisconsin tradition that Culver’s restaurants share with guests across the country.

5.  According to Julie Fussner, vice president of marketing for Culver’s, “We’re proud that after all this time, Culver’s has never compromised our commitment to not cutting corners. While working in his parents’ restaurants, Craig learned that doing things the right way – not the easy way – yields the best results. We continue that tradition today by battering each and every filet by hand.”

Launches Skill for Amazon Alexa

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6.  In early September 2018, Culver’s announced the launch of its skill for Amazon Alexa-enabled devices. The Culver’s skill for Amazon Alexa allows customers to quickly hear about the Flavors of the Day as well as upcoming flavors at nearby locations.

7.  To discover which flavor is being served at their nearest Culver’s location, all customers have to do after enabling the skill is say, “Alexa, ask Culver’s what is the Flavor of the Day.” Customers can also find out which flavor is available at a specific Culver’s location and discover which locations are serving their favorite flavor.

8.  Every day, in addition to Vanilla and Chocolate Fresh Frozen Custard, each Culver’s restaurant offers a special flavor, such as Caramel Chocolate Pecan, Cookie Dough Craving, and Double Strawberry. The Flavor of the Day program has been a part of Culver’s menu since the very first restaurant opened in 1984. The Culver’s skill for Amazon Alexa makes it easy for customers to keep tabs on Culver’s more than 50 Flavors of the Day.

9.  Julie Fussner, vice president of marketing for Culver’s, said, “According to independent research, about 39 million Americans own smart speakers, like Amazon Echo, and the use of voice search is on the rise. The Culver’s skill for Amazon Alexa updates our Flavor of the Day program and helps our guests more easily enjoy their favorite flavors.”

Appoints New Head of Supply Chain

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10.  At the end of August 2018, Culver’s announced that Mark Nachreiner had been promoted to vice president of supply chain management for Culver Franchising System, LLC. Nachreiner has nearly 30 years of experience in the food service industry, including his past 15 years of supply chain management experience with Culver’s.

11.  He most recently served as the organization’s director of supply chain for furniture, fixtures, and equipment. Prior to joining Culver’s, Nachreiner spent 14 years with Sysco Food Services, providing supplier support to Culver’s and other restaurant chains. Nachreiner replaced Greg Schneider who left the organization earlier in 2018.

12.  In his new role, Nachreiner will be responsible for the strategic leadership of Culver’s supply chain in key areas such as food distribution, equipment consolidation, quality assurance, facilities management, and developing strong business relationships with suppliers and franchisees.

13.  Jeff Bonner, chief operating officer of Culver’s, said, “I couldn’t be more proud of what Mark has accomplished in his 15 years with Culver’s. He strives for perfection and is truly committed to our franchise community. Mark’s leadership style and detailed knowledge of supply chain needs will blend perfectly with our long term objectives and franchise success metrics.”

Company History

14.  Culver’s was founded in 1984 by restaurateurs and husband-and-wife team Craig and Lea Culver – with help from Craig’s parents George and Ruth Culver – in Sauk City, Wisconsin. George and Ruth Culver had been in the food industry since 1961 when they purchased an A&W franchise. The Culvers added more restaurants to their business and continued to run them until Craig came up with the idea for an original restaurant in the early 1980s.

15.  Craig Culver wanted to open a restaurant that served Ruth’s homemade ButterBurgers and Fresh Frozen Custard. After selling their businesses, George and Ruth joined Craig and Lea for this new business venture and they named their restaurant Culver’s Frozen Custard and ButterBurgers.

16.  Initially, Culver’s had no advertising budget and struggled to make money. Culver’s had to rely on word of mouth, but eventually their clientele – and sales – increased. In 1988, the Culvers decided to start franchising, but did not set up a structured licensing agreement, charging no royalty fees. Due to this, the franchisee walked away from Culver’s the following year and the Culvers did not try franchising again for a few years.

17.  After setting up a set of standard franchising procedures that form the basis for those currently used by Culver Franchising System, Inc. today, Culver’s opened the first real franchise location in 1990. Over the next few years, Culver’s continued to grow slowly across southern Wisconsin. In the mid-1990s, Culver’s opened its first store outside of the state in Buffalo, Minnesota and more stores throughout the Midwest followed.

18.  At the end of the 1990s, Culver’s expanded beyond the Midwest and opened in Texas. Today, there are Culver’s restaurants across the United States.

Entrepreneur’s Franchise 500

19.  Culver’s ranked No. 6 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of Culver’s franchise costs, based on Item 7 of the company’s 2019 FDD.

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

  • Please click here for detailed information on Culver’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

  • Outlets at the Start of the Year:  551
  • Outlets at the End of the Year:  597
  • Net Change:  +46

2017

  • Outlets at the Start of the Year:  597
  • Outlets at the End of the Year:  634
  • Net Change:  +37

2018

  • Outlets at the Start of the Year:  634
  • Outlets at the End of the Year:  680
  • Net Change:  +46

Company-Owned

2016

  • Outlets at the Start of the Year:  8
  • Outlets at the End of the Year:  8
  • Net Change:  0

2017

  • Outlets at the Start of the Year:  8
  • Outlets at the End of the Year:  7
  • Net Change:  -1

2018

  • Outlets at the Start of the Year:  7
  • Outlets at the End of the Year:  6
  • Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

Schedule of Restaurant Financial Data

  • The following information discloses sales of the 630 franchised Culver’s Restaurants (“Franchised Restaurants”) and the 6 company-owned Culver’s Restaurants (“Company-Owned Restaurants”) open for the entire 12-month period ended December 31, 2018, and also selected cost percentages for the 6 Company-Owned Restaurants for the entire 12-month period ended December 31, 2018.
  • This includes information about non-traditional locations (including 2 Culver’s Restaurants that do not have a drive thru window, 5 Culver’s Restaurants that share a building with a convenience store, and 1 Culver’s Restaurant that occupies an end-cap of a multi-tenant building).
  • The following information does not include information from the 46 franchised Culver’s Restaurants open as of December 31, 2018, but that were not open as of January 1, 2018, and therefore did not operate for the entire 12-month period, nor does it include information from 3 franchised Culver’s Restaurants that were closed for a period of time during 2018 due to a substantial remodel, rebuild, or relocation of the Restaurant; 1 franchised Culver’s Restaurant that was closed for a period of time during 2018 due to damage to the Restaurant; or 1 franchised Culver’s Restaurant that ceased operations in 2018, and therefore none of these Restaurants operated for the entire 12-month period.
  • The Company-Owned Restaurants are located in Sauk City, Spring Green, Richland Center, Baraboo, Middleton, and Madison, Wisconsin.
  • The buildings housing the Company-Owned Restaurants are single-purpose, one story, and freestanding, seating 88 to 120 guests at one time, which is comparable to the Culver’s Restaurants expected to be operated under the Franchise Agreement.
  • Substantially the same services were offered to the Company-Owned Restaurants as are provided to the Franchised Restaurants. The franchisor does not, however, provide certain services to franchisees such as financing, accounting, legal, personnel, construction, management, financial, and food and labor cost systems.
  • The Company-Owned Restaurants also offered substantially the same products and services to the general public as will the Culver’s Restaurants to be operated under the Franchise Agreement.
  • The following tables were prepared on a basis consistent with generally accepted accounting principles and the same accounting system was used for each Company-Owned Restaurant.
  • The figures used in the tables are based on an annual performance. The information presented in the tables has not been audited, and the franchisor has not independently verified that the information provided by Franchised Restaurants is correct.

Part 1 – Franchised Restaurants Open 12 Months

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