Cinnabon Franchise Cost Is High for ROI (2024)
Cinnabon is an American baked goods chain with both stores and kiosks. As of December 2017, they had more than 1,200 stores operating in 48 countries – 939 of those are in America with only one company-owned outlet. It is owned by the same parent company as Auntie Anne’s. Their signature offering is their cinnamon rolls.
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How Is Cinnabon 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 are 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.
Cinnabon competes against other businesses like Krispy Kreme, Auntie Anne’s (yes, even though they have the same parent), and Wetzel’s Pretzels.
How Much Is a Cinnabon Franchise?
The initial Cinnabon Franchise Fee is $30,500. You have to pay this upfront fee when opening a Cinnabon franchise.
Cinnabon Franchise Cost
The estimated total investment necessary to begin the operation of a Cinnabon Franchise ranges from $233,700 to $546,800. The following costs are part of the upfront costs included in the initial investment for a Cinnabon store. 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 a Cinnabon franchise in 2022.
Initial Investment
| Type of Expenditure | Amount of Expenditure | To Whom Payment Will Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $30,500 | $30,500 | Us |
| Construction and Build Out Costs | $97,000 | $224,000 | Contractors |
| Permitting | $500 | $1,000 | Government agencies |
| Equipment Package | $25,000 | $94,000 | Vendors |
| Millwork | $20,000 | $36,000 | Contractors |
| Furniture | $0 | $0 | Vendors |
| Menu Board, Graphics and Interior Signage | $3,900 | $12,000 | Vendors |
| Exterior Signage | $2,500 | $7,500 | Vendors |
| Computer System | $6,000 | $24,000 | Vendors |
| Smallwares | $2,500 | $5,000 | Vendors |
| Architect/Engineer | $6,500 | $12,000 | Architect |
| Rent | $4,000 | $10,000 | Lessors |
| Grand Opening Marketing | $3,000 | $5,000 | Vendors |
| Legal and Accounting Fees | $5,000 | $10,000 | Lawyers and accountants |
| Insurance | $2,000 | $5,000 | Insurance companies |
| Misc. Opening Costs/Office Supplies | $1,800 | $6,800 | Vendors |
| Security Deposits | $0 | $15,000 | Utility companies; lessors |
| Training and Support Fees | $0 | $3,500 | Us |
| Travel and Living Expenses during Training | $3,500 | $7,500 | Airlines, hotels and restaurants |
| Opening Inventory | $5,000 | $8,000 | Vendors |
| Additional Funds – 3 Months | $15,000 | $30,000 | Employees, vendors, etc. |
| Total Initial Investment | $233,700 | $546,800 | |
These are in the same range as its sister brand and competitor, Auntie Anne’s.
Cinnabon Franchise Requirements
To start a Cinnabon Franchise you need $120,000+ in Liquid Capital and a $300,000 Minimum Net Worth.
Owning a Cinnabon Franchise Requires Ongoing Fees
Royalty: 6% of Net Sales.
Marketing Fee: 1.5% of Net Sales for non-streetside locations. 3% of Net Sales for streetside locations.
Local Marketing: At least 1% of Net Sales.
These fees are slightly higher than the industry standard with royalty fees being 5.3% on average.
How Much Do Cinnabon Franchise Owners Make?
| Quartiles | Average Net Sales | Number and Percentage of Bakeries Attaining or Exceeding Average Net Sales | Median Net Sales | Lowest Net Sales | Highest Net Sales |
|---|---|---|---|---|---|
| Top Quartile | $1,018,985 | 15/43 (35%) | $929,817 | $772,260 | $2,373,388 |
| 2nd Quartile | $685,782 | 20/42 (48%) | $683,871 | $595,413 | $756,768 |
| 3rd Quartile | $508,084 | 19/42 (45%) | $502,215 | $416,849 | $594,727 |
| Bottom Quartile | $326,275 | 25/42 (60%) | $338,599 | $178,376 | $411,337 |
| Total | $637,055 | 78/169 (46%) | $595,413 | $178,376 | $2,373,388 |
2021 Cinnabon Median Franchise Sales: $595,413
| Initial investment (midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $390,250 | 5% | $59,541 | 9 years |
| $390,250 | 10% | $89,311 | 7 years |
| $390,250 | 15% | $119,082 | 5.75 years |
Based on the median sales provided by Cinnabon’s franchise locations, at an average of a 15% profit margin it will take around 7 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment.
Also, include the time it takes to scale up the business which is typically 1.5 years for service industries and 2.5 years for food industries in your calculation.
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 Cinnabon stores; the extent of market penetration and brand awareness that Cinnabon stores have attained in your market. Also, the quality of management and service at your Franchised Store will affect profits.
Is the Cinnabon Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Cinnabon 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 $1 Million Net Sales
- Estimated Selling Price = Net Sales – 0.44
When you go to sell a Cinnabon franchise based on the median multiple of .44 and net sales in 2021 of $595,413, it will sell for $261,981. This is lower than the midpoint investment of $390,250. However, the initial investment can be recovered.
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.
Cinnabon (Franchisor) Income Statement Key Insights:
Consolidated statements of operations (In thousands)
| For the fiscal years ended: | December 26, 2021 | December 27, 2020 | December 29, 2019 |
|---|---|---|---|
| Revenues: | |||
| Franchise revenues | $221,276 | $166,977 | $210,226 |
| Total revenues | 221,276 | 166,977 | 210,226 |
| Fees and expenses: | |||
| Management fee to FBLLC | 41,654 | 42,353 | 44,098 |
| Selling, general and administrative expenses | 404 | 1,793 | 462 |
| Depreciation and amortization expense | 3,030 | 3,435 | 3,929 |
| Total fees and expenses | 45,088 | 47,581 | 48,489 |
| Operating income | 176,188 | 119,396 | 161,737 |
| Income before income tax expense | 176,188 | 119,396 | 161,737 |
| Income tax expense | 1,565 | 1,188 | 1,637 |
| Net income | $174,623 | $118,208 | $160,100 |
Cinnabon is a very profitable business for the franchisor with retained earnings of $174 million in 2021. Compared to $160 million in 2019, they saw an increase of 8.75% from 2019 to 2021. This is a good indication of high growth as a company overall.
How many Cinnabon units have opened and closed?
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 923 | 932 | +9 |
| 2020 | 932 | 935 | +3 | |
| 2021 | 935 | 938 | +3 | |
| Company-Owned | 2019 | 1 | 1 | 0 |
| 2020 | 1 | 2 | +1 | |
| 2021 | 2 | 1 | -1 | |
| Total Outlets | 2019 | 924 | 933 | +9 |
| 2020 | 933 | 937 | +4 | |
| 2021 | 937 | 939 | +2 |
Over the last three years, the company has been expanding, albeit not much. Between 2019 and 2021, only 15 new Cinnabon stores opened. That is an average rate of 5 stores per year. Compared to their total of 939 outlets, this might indicate saturation in the market.
Conclusion
Cinnabon has carved a niche market for itself with their offerings of Cinnamon rolls and the name alone invokes cinnamon rolls in the minds of a lot of people. Therefore, Cinnabon has a strong product offering with brand recognition that is very powerful. While this may be the business for you, make sure to also check out other businesses offered on Vetted Biz and in the Food and Beverage Industry.
