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Applebee’s Franchise Not Suitable for Single Unit Operator (2023)

Written by: Parth Parth
Last Updated by Brenda Bagnoli: January 18, 2023
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Applebee’s is an American Restaurant chain that focuses on casual dining offering  salads, chicken, pasta, burgers, and “riblets.”

Applebee’s is one of the world’s largest casual dining brands with $3.1B in sales and 12.2% of the Casual Dining market share. As of December 31, 2021, there were 1,584 restaurants in all 50 states, Puerto Rico, Guam, and 11 other countries. Applebee’s is more than 95% franchised with 31 franchisees who own an average of nearly 50 restaurants. The largest Franchisee owns ~29% of U.S. restaurants and the 10 largest Franchisees own 76% of the system.

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How is Applebee's Franchise Positioned in the Food and Beverage Industry?

The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people get employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.

Applebee’s competes in the Fast Casual market against big brand companies such as Chipotle, Five Guys, Panera, and Panda Express.

How Much is an Applebee's Franchise?

The initial Applebee’s Franchise Fee is $35,000. You have to pay this upfront fee when opening an Applebee’s franchise.

Applebee's franchise olive garden

Applebee's Franchise Cost

The estimated total investment necessary to begin the operation of an Applebee’s Franchise ranges from $2,009,201 – $8,266,730. The following costs are part of the upfront costs included in the initial investment for an Applebee’s. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy an Applebee’s franchise in 2022.

Estimated Initial Investment

Type of expediture Amount To Whom Payment Is To Be Made
Initial Organizational and Training Expenses (incorporation, legal and accounting fees, training site location and miscellaneous expenses) $75,000 – $12,000 Employees; suppliers, Airlines, hotels
Purchase of land $300,000 – $3,000,000 Owner of property
Building Cost (purchase, construction, remodeling, etc) $556,000 – $2,600,000 Owner of Property; contractors; Suppliers
Site Work $50,000 – $800,000 Contractors; Suppliers
Professional Services $30,000 – $211,000 Architects; contractors
Permits/Fees (see below for liquor License) $1,500 – $75,000 City/State Goverment
Furniture, Fixtures, Equipment and Signage $410,000 – $825,000 Suppliers
POS System $20,000 – $45,000 Suppliers; Us or our Affiliates
Kitchen Display System $12,000 – $18,000 Suppliers
Smallwares (dishes, silverware, other utensils, etc) $25,000 – $50,000 Suppliers
Initial Inventory $25,000 – $47,300 Suppliers
Pre-Opening Expenses (insurance, legal, accounting, personnel and training expenses) $55,000 – $350,000 Employees; Suppliers; Utilities
Applicant’s Fee $0 – $15,000 Us
Franchise Fee deposit $0 – $10,000 Us
Initial Franchise Fee $35,000 (if franchise fee deposit paid, then less $10,000, for a total of $25,000) Us
Initial Advertising Expense $5,000 – $1,000,000 Suppliers
Liquor License(s) $500 – $1,000,000 Licensing, Authorities; third party
Apple Supply Chain Co-op Stock purchase $0 – $100 Apple Supply Chain Co-op Inc.
On-Line Ordering $56 – $150 per month Suppliers
Europay, MasterCard and Visa (“EMV”) Point to point encryption (“P2P2”) Services. $1,500 – $3,000  Suppliers
Wi-Fi Services $90 – $400 per month  Suppliers
Wi-Fi Equipment $300 – $600  Suppliers
Digital Products Services Fee $300 – $350 per month 30 days after billing (billed annualy)
Server Tablet Maintenance Fee $0 – $1,000 per year 30 days after billing
Implementation Fees $240 to $450 On demand
Menu Management Platform fee $0 – $150 per month Monthly
Customer Relationship Management (“CRM”) Fee $0 – $150 per month On Demand
Gateway Processing Fee $63 per month Monthly
Waitlist $0 – $100 per month As Incurred
ROSnet – Food cost, Labor and business analytics reporting service $200 set up location; $75 – $225 per month (depending on modules selected) As Incurred
Campaign/Menu Training $30 per year As Incurred
Training: Applebee’s University (or a future learning management system training program provided by us) or your selected training program approved by us $120 per year As Incurred
Extra Manuals $0 – $250 per set As Incurred
Operating Expenses During First Three Months $405,000 – $655, 000 Varies based on supplier and expense type
TOTAL $2,009,201 – $8,266,730
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Applebee's Franchise Requirements

  1. Financial Capability to develop, equip and operate one or more Applebee’s restaurants
    • Net worth: Net worth requirement is based on the total number of Applebee’s restaurants requested: a minimum of $3,000,000 for single store development or $1,500,000 per restaurant for 3 or more locations.
    • Liquid assets: Liquidity requirement is based on the total number of Applebee’s restaurants requested: a minimum of $1,000,000 for single store development or $500,000 per restaurant for 3 or more locations.
      • Ability to verify availability of liquid assets
        • Bank statements
        • Brokerage account statements
      • Ability to obtain financing for the construction of restaurant(s)
        • Conventional bank loan
        • SBA loan
        • Build-to-suit opportunities
    • Loan commitment letters are also acceptable as evidence of financing and ability to provide funds to complete transactions.
  2. Operational Capabilities (Ability to operate an Applebee’s restaurant)
    • Restaurant experience or partnership with an operator with full-service restaurant experience
    • Management experience
    • Demonstrated leadership skills
    • Business acumen
  3. Defined Development Area
    • Specific area identified for development
    • Proposed development area cannot be subject to existing Single or Multi-Restaurant Development Agreements
    • Proposed development area cannot be subject to existing Area Development or Area Franchise Agreements
  4. Business Plan
    • Written plan for proposed financing of development
    • Written plan for the management of the proposed franchise entity and restaurants

Owning an Applebee's Franchise Requires Ongoing Fees

Royalty: 4% of Gross Sales

Advertising (National Fund) Fee: Currently, 4.25% of total Gross Sales

How much do Applebee's franchise owners make?

Applebee’s does not disclose financials, so we are going to estimate the average unit volume

Applebee’s Median Franchise Sales: $2,641,318

Initial investment(midpoint) %Profit margin of average franchise sales Estimated Profits Time to recoup investment
$5,137,965 10% $264,131 21 years
13% $343,371 16.5 years
16% $422,610 13.5 years

Based on the median sales provided by Applebee’s’s franchise locations, at an average of a 13% profit margin it will take around 16.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 13% profit margin which would elongate getting a return on your investment.

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Food and Beverage stores; the extent of market penetration and brand awareness that Applebee’s stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Applebee's franchise

Is the Applebee's Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Applebee’s franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Under $5 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.34

Over $5 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.86

When you go to sell an Applebee’s franchise based on the median multiple of .34 and average unit volume estimate for 2021 of $2,641,318, it would sell for $898,048. This is significantly lower than the midpoint investment of $5,137,965.

However, once you make over $5 million in sales, the multiple shifts to 0.86. This helps the restaurants start making up the investment cost. This is the reason behind 95% of Applebee’s franchises being owned by 31 franchisees. As such, you will have to wait some time before selling your restaurant to recover the initial investment.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

Applebee's (Franchisor) Income Statement Key Insights:

Applebee’s Franchisor LLC – Statement of Income (in thousands)

Fiscal Year Ended January 2, 2022
Revenues
Franchise revenues $71,63
Costs and Expenses
Franchise expenses:
Advertising expenses $36,520
Other franchise expenses $91
Total franchise expenses $36,611
General and administrative expenses $10,326
Total cost and expenses $46,937
Other income $1,300
Net income $25,726

Applebee’s is a very profitable business for the franchisor with retained earnings of $25.726 million in 2021.

How many Applebee's units have opened and closed?

System-wide Outlet Summary For Years 2019 to 2021 (traditional venue locations)

Outlet type Year Outlets at the Start of the Year Outlets at the End of the Year Net Change
Franchised 2019 1,628 1,600 -28
2020 1,600 1,537 -63
2021 1,537 1,515 -20
Company-Owned 2019 69 69 0
2020 69 69 0
2021 69 69 0
Total Outlets 2019 1,697 1,669 -28
2020 1,669 1,606 -63
2021 1,606 1,584 -20

Over the last three years, the company has been in decline. Franchising units have consistently decreased. Over the last three years, franchises have closed at a rate of 37 units a year. This is an indicator that these stores may not be performing well. Or their franchise term is up and they are not renewing it.

Conclusion

Applebee’s offers people the opportunity to take a chunk of the American Fast Casual Restaurant pie. However, due to the massive investment required to turn a profit, it is not for people who do not have the money to start multiple franchises. Otherwise, it will take a really long time for people to get their money back.

While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food and Beverage Industry.

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