Franchise Information Report

Transcription

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2 Table of Contents What is Huddle House? 3 A History of Delicious Food, Served From the Heart 7 What are my Startup Costs? 9 What Our Franchisees Can Earn 13 Who We re Looking For 15 Menu Research and Development 18 Next Steps 21!2

3 What is Huddle House? Guests love the Southern hospitality, 24-hour breakfast and classic comfort food Huddle House is a Southern diner franchise known for our round-theclock breakfast, Southern hospitality and being the best place to gather in any hometown. After more than 50 years in business, we ve earned our status as an iconic brand. Our crowdpleasing menu of favorites is available any time guests want and business thrives in small towns, suburbs and exurbs. The breakfast portion of the menu accounts for more than half of sales, which is awesome because breakfast items generally have higher margins than food typically ordered in other dayparts. With our efficient and affordable building design, we out-maneuver other food concepts by operating in small towns and rural population centers. Entrepreneurs who open a Huddle House can do big things for a small town by offering a much needed community gathering place and local hangout. But our timeless and traditional model also translates just as easily in the suburbs and exurbs, providing a wealth-building opportunity for multi-unit operators. We re seeing lots of growth in new areas now for that very reason. Our collective buying power, centralized supply and focus on lower-cost, higher-margin breakfast foods provide a great earnings opportunity for franchise owners. Our smaller market strategy, where land is still plentiful and affordable, allows franchisees to build significant equity through purchasing both land and building, paid for by proceeds from restaurant operations.!3

4 If you re looking to break into foodservice for the first time, experienced multi-unit franchisees will often tell you they built a significant portion of their wealth through real estate acquisition. The model of buying land and building has become cost-prohibitive in many larger cities. Many chains don t know how to operate profitably in towns of under 20,000 residents where land is still available at a reasonable price. Huddle House has a long history of profitably penetrating smaller communities and creating wealth through cash flow generated by restaurant operations as well as equity in both land and buildings. Of course, our business footprint is flexible. We can fit into urban and inner-city storefronts and residential shopping centers, as well as freestanding buildings in rural communities or truck stop locations. Breakfast is all dayparts While more and more QSRs are focusing their efforts on capitalizing on breakfast, there aren t that many full-service restaurants whose brand means breakfast to a large number of regular customers. Our breakfast menu items constitute more than half of sales in a typical Huddle House, and with higher margins on breakfast items than many other menu offerings, franchisees are able to deliver great food at an excellent value while maintaining strong margins. It s part of our unique charm that guests love they know they can get biscuits and gravy or a loaded omelet or a golden waffle any time of day or night.!4

5 Opportunities for growth The first Huddle House was opened in Decatur, Georgia, in 1964, and more than 50 years later, our Any Meal. Any Time. philosophy still draws brand fans and new guests. Today we re a thriving franchise with 400 units nationwide, a strong presence in the South and an increasingly strong foothold in other regions of the country. What does this mean to an investor? Fifty years of brand relevance and long-term sustainability means we are as relevant today as we were 50 years ago. How many iconic restaurant brands from 50 years ago stay iconic? And with 400 locations, we have a scalable model that is battle-tested with time. Our flexible restaurant models provide opportunities to a range of investors, from the entrepreneur who wants to improve his hometown community to the experienced multi-unit operator looking to diversify his portfolio. Huddle House produces cash flow and builds significant equity when combined!5

6 with a real estate play. Plus, our diner franchise model is scalable, meaning franchisees can do it again and again, building more cash flow and equity. We ve significantly lowered our initial investment, we re offering major incentives for multiple units, and we re increasing our sales and top end, says Huddle House franchise CEO Michael Abt. We re working on improving our franchise margins, making us one of the most attractive food franchises in the market today.!6

7 A History of Delicious Food, Served From the Heart The story of Huddle House is the story of community, service and great Southern comfort food John Sparks was working at his Decatur, Georgia, diner one evening in 1964 and thinking about his new idea for a chain of Southern-themed diners. He knew he wanted a friendly, welcoming atmosphere with good food at a great price, but he didn t know what he would call it. A group of high school boys came in, fresh from football practice, and gathered in the corner. As they leaned in together, talking and laughing, one of them still had a football in one hand and a helmet in the other. They looked, Sparks thought, like they were in a huddle. And that s when it hit him: Huddle House was the perfect name for his restaurant chain. Over 50 years later, Huddle House is the hub in some 400 communities across the United States, a place where folks gather before the Chamber of Commerce meeting or for brunch after church or anytime at all. We still rule the small-town markets we started in, because we re especially important in towns that don t have dining options other than fast food. We also do well in larger urban areas, interstate travel centers and college towns. Wherever you find Huddle House, you ll find people who value community and Southern-inspired comfort food and servers who greet you by name and pour your coffee just the way you like it. Any Meal. Any Time. That Any Meal. Any Time. motto has been part of our philosophy for the last five decades. Huddle House s unwavering commitment to outstanding Southern hospitality, generous portions, affordable prices create pull-demand that creates high-frequency regular customers. Our unit-level economics can sustain single-unit owners who want to provide that community gathering spot for their hometown or entice experienced multi-unit owners looking to diversify their investment portfolios. In addition, many of our franchisees own their building and land, building significant equity in real estate holdings.!7

8 While we ve held true to the same core values over the years, we ve learned to be nimble and change with the times. Our updated Evolution restaurant design features a look that s bright, colorful and reminiscent of America s classic neighborhood diners. A modern logo adorns signs and menus. Breakfast classics like fluffy omelets and golden waffles join updated classics like stuffed hashbrowns. Franchisees generate revenue through all day parts: breakfast, lunch, dinner, late night, and weekends. No matter what the daypart is, everything on the Huddle House menu is always available.!8

9 What are my Startup Costs? Start your own breakfast franchise for less than those other guys When you take a look at the Huddle House franchise startup costs compared to the initial investment required by the competition, things stack up nicely. Starting your own Huddle House franchise costs less than franchises like IHOP and Denny s, and is accessible, unlike corporate-owned Waffle House. We have flexible restaurant formats, which means startup costs vary, ranging from $444,192 to $1,550,670. Factors that influence the startup costs include leasing vs. buying land and constructing a building, remodels on existing restaurants and openings of former restaurants.!9

10 Item 7 from our latest Franchise Disclosure Document details some of the expenses you should anticipate: ITEM 7. ESTIMATED INITIAL INVESTMENT OPTION I: Standard Unit Purchase of Land, Building, Signs and Equipment Expenditures Low Amount High Amount Method of Payment Due Payment Made To One Payment When you Execute the Franchise Agreement HHI Initial Franchise Fee $25,000 $35,000 Training Fee and Travel and Living Expenses While Training 12,500 15,600 Training fee ($4,990) before construction start; remainder before opening HHI (for training fee); Suppliers, Transportation, Food and Lodging Real Estate (Land) 168, ,000 Seller Site Development 143, ,000 Progress Payment Contractors or Excavators Improvements 133, ,000 Progress Payments Contractors Equipment and Seating 91, ,000 Financed or As Incurred or HHI Signs and Décor 20,000 68,000 Site Plan/Engineering Drawings 8,000 18, Suppliers of Transportation, Food and Lodging Smallwares, Opening Inventory and Uniforms 40,000 50,000 or HHI POS System 15,500 25,000 Lump Sum Monthly and Monthly thereafter 1,200 2,000 Annually and Annually thereafter Monthly Monthly Miscellaneous Opening Costs 6,000 16,000 Lump Sum, HHI, Governmental Authorities, Utilities Additional Funds Months 6,000 18,000 As Incurred As Incurred $781,992 $1,550,670 Travel Expenses for Opening Guide Meeting Help Desk and Maintenance Computer Related Security Services Customer Feedback Program Totals!10

11 OPTION II: Standard Unit Lease of Land, Building, Signs, and Equipment (Non-Resale Units and Resale Units) Expenditures Low Amount High Amount Payment Method Due Payment Made To When you Execute the Franchise Agreement HHI Training fee ($4,990) before construction start; remainder before opening HHI (for training fee); Suppliers, Transportation, Food and Lodging $25,000 $35,000 One payment Training Fee and Travel and Living Expenses While Training 12,500 15,600 Real Estate First Month s Rent 4,500 8,000 Monthly HHI or third-party Landlord Equipment First Month s Rent 1,500 3,500 Monthly HHI or third-party Landlord 500 1,000 Monthly HHI or third-party Landlord or HHI Suppliers of Transportation, Food and Lodging 275 Monthly and Monthly thereafter 2,000 Annually and Annually thereafter Monthly Initial Franchise Fee Signs-First Month s Rent Smallwares, Opening Inventory and Uniforms Travel Expenses for Opening Guide Meeting POS System Help Desk and Maintenance Computer Related Security Services 40,000 50, , ,200 25,000 Lump Sum Customer Feedback Program 45 Miscellaneous Opening Costs 6,000 16,000 Lump Sum, HHI, Governmental Authorities, Utilities Additional Funds-3 Months 6,000 18,000 As Incurred As Incurred Employees and Totals (for a non-resale Unit) 45 Monthly 112, , ,000 $112,990 $675,170 Additional for Resale Only: Business Good Will - For a Resale Unit Only Totals for a Resale Unit!11

12 OPTION III: Standard Unit Lease of Land and Building; Purchase of Equipment, Signs and Leasehold Improvements Expenditures Low Amount High Amount Payment Method Due Payment Made To One Payment When you Execute the Franchise Agreement HHI Training fee ($4,990) before construction start; remainder before opening HHI (for training fee); Suppliers, Transportation, Food and Lodging Monthly Third-party Landlord $25,000 $35,000 Training Fee and Travel and Living Expenses While Training 12,500 15,600 Real Estate First Month s Rent 4,500 8, , ,000 Progress Payments Contractors Equipment and Seating 87, ,000 Financed or As Incurred or HHI Signs and Décor 18,000 51,000 5,000 15,000 Travel Expenses for Opening Guide Meeting Suppliers of Transportation, Food and Lodging Smallwares, Opening Inventory and Uniforms 40,000 50,000 or HHI POS System 15,500 25,000 Lump Sum Help Desk and Maintenance Monthly and Monthly thereafter Computer Related Security Services 900 2,000 Annually and Annually thereafter Monthly Monthly Miscellaneous Opening Costs 6,000 16,000 Lump Sum, HHI, Governmental Authorities, Utilities Additional Funds-3 Months 6,000 18,000 As Incurred As Incurred Employees and $444,192 $796,670 Initial Franchise Fee Improvements Site Plan/Engineering Drawings Customer Feedback Program Totals!12

13 What Our Franchisees Can Earn Explore average franchisee earnings for 2015 in Item 19 from our FDD Part of researching a new franchise should always include a close look at the income potential. At Huddle House we pride ourselves on a high level of information transparency, and to that end we have gathered and made public store-level historical financial performance and sales information in the Huddle House Franchise Disclosure Document (FDD). A snapshot of that information is below. You will get the chance to review the entire 9page Item 19 of the FDD once you begin the formal due diligence process. The information in the charts below was prepared from sales information provided by franchisees of traditional (freestanding and endcap format) restaurants. The franchisees sales information is not audited. You should consider that this information gives no weight to specific locations, types of operators, investment cost or market conditions. Sales may differ widely from one location to another, without respect to their geographic region. You must make your own investigation into the likely sales and costs in your specific location and region. Someone who is purchasing an existing restaurant should review the actual financial results of the restaurant they re purchasing. Prospective franchisees for non-traditional restaurants should not rely on the figures below, as that type of restaurant may experience different results.!13

14 Financial Performance Representations Part 2 Annualized Unit Volumes for Franchised Restaurants open 12 months Top 20% - Franchised Restaurants (68 units) # of Units DSA Reported Sales Average Annualized Sales # (%) at or above Average Evolution Stores 25 3,165 28,586,765 1,155,245 10, 40.0% Non Evolution Stores 43 2,465 38,463, ,547 21, 48.8% # of Units DSA Reported Sales Average Annualized Sales # (%) at or above Average 73 2,069 54,616, ,178 35, 47.9% 128 1,623 75,532, ,510 59, 46.1% # of Units DSA Reported Sales Average Annualized Sales # (%) at or above Average Evolution Stores 25 1,368 12,429, ,245 15, 60.0% Non Evolution Stores 43 1,044 16,320, ,073 26, 60.5% Middle 60% - Franchised Restaurants (201 units) Evolution Stores Non Evolution Stores Bottom 20% - Franchised Restaurants (68 units) Financial Performance Representations Part 3 Annualized Unit Volumes growth vs. prior year, and Evolution design performance 2016 Annualized Unit Volume - Growth % higher than prior year All Franchised Restaurants 5.1% 2016 Annualized Unit Volume Comparison of Evolution vs. Non Evolution Design Franchised Restaurants Sales % higher than Non Evolution Units 1,155, % Evolution Design Restaurants Top 20% (25 units) Evolution Design Restaurants Middle 60% (73 units) 755, % Evolution Design Restaurants Bottom 20% (25 units) 499,245 31%!14

15 Who We re Looking For Huddle House franchise owners run the gamut from hometown entrepreneurs to multi-unit investors The Huddle House franchise model accommodates both serial restaurateurs and multi-unit franchisees as well as single-unit investors looking to break into foodservice. There are plenty of franchise concepts out there that only want franchisees willing to immediately commit to multiple locations, says Christina Chambers, Vice President of Franchise Development. There are other franchises that just don t have the longevity and the proven systems in place that Huddle House has, and they re not equipped to support the kind of growth capacity that a savvy multiunit owner can bring. At Huddle House, we embrace both single and multi-unit owners. We know that some franchise owners want to improve their hometowns, create jobs and create that central gathering place that they can be proud of, while others are looking for a smart brand where they can scale up quickly and lock in protected territories in top markets. We believe there s room for everyone at the table. Meet Huddle House franchisees Robert Wiggins Jr. opened a new Huddle House location in 2015, but the concept wasn t exactly new to him. Some 25 years prior, Wiggins and his father had built the first Huddle House in Hazlehurst, Georgia, only to sell the location after several years. Wiggins subsequently invested in various food franchises, but when he heard that Hazlehurst was once again without a Huddle House after the original location closed, he jumped at the chance.!15

16 I was familiar with the old Huddle House concept, but it s changed a lot over the years, Wiggins says. The actual layout of the building itself is different, and the quality of food is definitely better. They really stress the quality now. The experienced foodservice franchise owner, who owns franchises with Pizza Inn, Dick s Wings and Hardee s, is so pleased with the direction of our brand and the community reception to the new Hazlehurst location that he s already considering expanding. Huddle House does big things for little towns, particularly since we thrive in places that other franchises reject as too small. 18 units in the first 6 years When he was considering buying into the Huddle House system back in 2007, Gregg Hansen already had foodservice franchising and multi-unit retail experience under his belt, so he understood clearly what he wanted. He also knew what he didn t want specifically, he didn t want to recreate the wheel. With a stable brand that already had proven systems in place, Hansen would be free to build his own team of people to execute those systems, which would allow him to grow as large as he wanted to. To date, he s up to 18 locations in 7 states. We still have four folks from that first location we opened in 2007 who still work for us, and I think it is a tribute to them and a tribute to us, Hansen says. We love to promote from within, so as we have grown from 2 locations to 18 locations, we have added obviously a couple of layers of management, and all of those layers of management have folks that have been with us for 6 years, 7 years, 8 years. It has been a joy to watch those people grow up with us.!16

17 Customer to franchisee Barry Robinson spent most of his early professional life working in an office building right across the street from a Huddle House, and he ate there often. When it came time to leave the retail supermarket industry and start something new, Huddle House kept coming to mind. Robinson had loved Huddle House as a customer, and when he was trying to think of a business he could invest in that would add something back to his adopted hometown of Hahira, Georgia, he kept coming back to Huddle House. "When I had an opportunity to make a career change, I honestly did start with a blank sheet of paper and considered a number of nearby possibilities. But as I started running those possibilities through various filters, Huddle House was the one that just naturally wound up filtering itself to the top. Whenever the focus really became Hahira, Georgia, itself versus other opportunities that were nearby but not in my hometown, Huddle House was just the perfect fit."!17

18 Menu Research and Development Franchisees drive revenue through 5 day parts: breakfast, lunch, dinner, late night and weekends The Huddle House menu is made up of Southern-inspired comfort food that evokes nostalgia. It s uncomplicated; it s made from ingredients supplied from our in-house supply chain; and it is designed to deliver high consumer value at healthy gross margins to franchisees. That s not something you ll find at most breakfast franchises. The Huddle House menu is all about the comfort food that reminds you of things your mom might cook for you on a Saturday morning in the South. It s all about the nostalgia, those warm, around-the-table moments from a time when people actually sat together on Saturday mornings without spending time on their devices, says Executive Chef and Director of Menu Development Jenn Townsend. I love the Huddle House menu, says Townsend, who has been a food concept owner-operator herself and has research and development experience with Blimpie s and Arby s. I love working on the food, and I love the people who eat our food. Demand, supply and commodities An in-house supply chain helps us keep food costs down and build in protection against the fluctuating price of commodities. We buy food and smallwares in bulk for franchisees and, because we have internal distribution systems, we can break down larger volume shipments for individual franchise partners, which helps protect profit margins and cut down on food waste. This also allows us to award franchises to candidates without any restaurant experience.!18

19 Breakfast foods are traditionally cheaper than other dayparts, and with breakfast items constituting 60% of our sales on average, our franchise partners tend to see higher margins. Of all the brands I m associated with, Huddle House has the lowest food costs of any of the brands, says Franchise Partner Robert Wiggins. The awesome thing is there is a ton of eggs in our core heavy-mix items, Townsend says. Eggs are cheap. Our hashbrowns are very popular potatoes are cheap. Food cost fluctuations don t hit us that hard. Fluctuating commodities prices can wreak havoc on many chains and erode margins. Our menu mix and on-staff Procurement Director shelter franchisees from radical swings in food costs. Stuffed hashbrowns aren t something guests are likely to make at home, but they re a perennial favorite. Lower-cost items like eggs and potatoes make it popular with franchisees, too. Mike Lokhandwala, an experienced multi-unit food franchise operator who opened his first Huddle House in Valdosta, Georgia, in 2016, says the popularity of the breakfast menu and the potential of higher profit-margins definitely influenced his decision to invest. With the majority of our sales coming from the first shift, the breakfast shift, that drills down to the breakfast portion making a larger impact on that food cost, so yes, that did influence my decision, he says.!19

20 Our menu is simple Huddle House menu is relatively simple, easy to prepare and easy to learn. This minimizes the impact of store employee turnover on the overall guest experience and helps us maintain consistency during training or periods of transition. When asked how Huddle House is unique among breakfast franchises, franchisee Barry Robinson describes us this way: Huddle House has something for everybody when you look at the Huddle House menu. We have everything covered. You ve got the full dinners; the things the kids want like hamburgers, chicken fingers and those sorts of things; you ve got sandwiches; the breakfast. The full spectrum of the menu is covered so that you have something for everybody in the community.!20

21 Next Steps Total process typically averages days!21