Culver’s Franchise Cost & Fee Justified By Growth (2023)
Culver’s is a renowned franchise restaurant that originated in Wisconsin in 1987 but is now dominant in the Midwestern United States with 776 franchise units and 6 corporate units. They previously operated under the name Culver Franchising System and is infamous for its combo of ‘burgers & shakes’. They work under the slogan ‘Welcome To Delicious’ which exemplifies their belief in their franchise’s commitment to quality food. Have you ever thought about running your own Culver? After all, Culver’s franchise is where you can own and operate your own restaurant. Owning a franchise is a lot of work and money so it is necessary to take critical consideration before making an investment. Below is all the information about owning Culver that all prospective franchisees should know beforehand.
The business is handled by the founder, Craig C. Culver, himself who has worked in the capacity of Chairman and Director since 1987. The current CEO, Enrique Silva, is a fairly new addition to the CFS but he has been part of the Food and Beverage Industry for over a decade.
Contents
Listen to this article
Performance within the Food Franchise Industry
Culver is a part of the foods and beverages industry which is a significant contributor in terms of employment and labor income in the US. Most food franchises perform relatively well with defaults rate being low over the last 10 years. According to Vetted Biz’s data analytics, the ratio of successful SBA loans to defaults is 8:1 which points to the strong performance by the industry.
On average the food and beverage industry has a 5.3% royalty fee and a 2.3% marketing fee. The growth rate is expected to be around 15.5% with a failure rate averaging at 19% meaning that the industry doesn’t have high risks involved with investing. Culver on the other hand charges a royalty fee of only 4% but it expects the new franchises to contribute 2.5% to advertising; it also expects that franchise owners invest 1% of the gross annual sales into local marketing. Culver’s has performed exceptionally well when it comes to expanding its number of franchises; since the start of 2016, they have opened 225 new units while closing only 1.
The initial Culver’s franchise fee is $55,000 (there is also an ‘Application Fee’ for $5,000 which is required to defray some of the costs of the initial evaluation) meaning that you have to pay this amount upfront to open a new franchise.
The estimated total investment necessary to begin operation of a Culver’s franchise ranges from $2.4 million – $5.4 million. Many of the items in the list are fixed costs that only have to be paid one time like land, building, POS cash register system etcetera. Please look at the table below to see the initial costs of opening and operating a Culver’s franchise.
Culver’s Investment
| Type of Expenditure | Amount – Est. Low Range | Amount – Est. High Range | Method of Payment | When Due | To Whom Payment Is To Be Made |
|---|---|---|---|---|---|
| Initial Franchise Fee | $20,000 | $55,000 | Lump Sum | On signing franchise agreement | Us |
| Land | $330,000 | $1,800,000 | Varies | Varies | Third party |
| Site Work | $258,000 | $906,000 | Varies | Varies | General Contractor |
| Building | $1,121,000 | $1,619,000 | Varies | Varies | General Contractor |
| Travel, Living and Expenses during Training | $20,000 | $80,000 | As Incurred | During Training | Employees, third party suppliers |
| Initial Inventory | $35,000 | $50,000 | Lump Sum | Before opening | Approved third party suppliers |
| Furniture, Fixtures Equipment and Supplies | $395,000 | $510,000 | Deposit upon signing agreement with supplier and lump sum payment on balance | Before opening | Approved third party suppliers |
| Sign Package | $106,000 | $220,000 | Deposit upon signing agreement with supplier and lump sum payment on balance | Before opening | Approved third party suppliers |
| POS Cash Register System | $43,000 | $52,000 | Deposit upon signing agreement with supplier and lump sum payment on balance | Before opening | Approved third party suppliers |
| Miscellaneous Expenses | $20,000 | $40,000 | As incurred | Before opening | Various party suppliers |
| Additional Funds – for 3 months | $50,000 | $100,000 | As incurred and lump sum | First three months | Various third party suppliers |
| Total | $2,398,000 | $5,432,000 |
Comparison with Direct Rivals
Culver’s main competitors in the market are Freddy’s Frozen Custard and Wendy’s. To open a Wendy’s franchise, you need to have a net worth of at least $1 million and liquid assets of more than $500,000 which is much higher than Culver’s meaning that they’re more exclusive in their choice of franchise owners. They also have a royalty fee of 4% which is probably a result of Wendy’s strong public image and brand loyalty that they have developed over the past few decades. Freddy’s Frozen Custard has similar requirements and costs: a minimum net worth of $1 million, $400,000 liquid assets, and a royalty fee of 4.5%.
Franchise Opportunities and Costs
Culver provides the majority of its franchise opportunities in the central US. It provides franchise opportunities in Colorado, Nebraska, Indiana, and more. It hopes to provide future opportunities in states like Oregon, California, and Nevada.
So, to open a franchise Culver’s requires you to have a minimum of $500,000 in liquid assets to qualify for ownership of a franchise and if you prefer to own the building, and real estate, you are expected to show liquid assets of a minimum of $750,000.
Like any business, owning a franchise requires constant investment to operate, grow, and improve itself.
Culver’s requires both a royalty and marketing fee which has been mentioned above.
And you may be required to pay for insurance, management fees, territory reservation extension fees ($10,000) and more. To get a better understanding of the variable costs in running a Culver’s franchise, please look at the table below.
Other Fees
| Type of Fee | Amount |
|---|---|
| Service Fee | 4% of Gross Sales |
| Advertising Fee | 2.5% of Gross Sales |
| Cooperative Advertising | Up to 4% of your Gross Sales, as approved by a majority vote of the members of the Co-op Advertising Region |
| Additional Training | $1,000 per person |
| E-Learning Program | Currently $200 per quarter or $740 annually |
| Additional Assistance | $500 per week |
| Site Review Fee | $500 per site after four site reviews |
| Custom Design Fee | Up to $5,000 |
| Extraordinary Building Assistance Fee | Up to $30,000 |
| Building Conversion Fee | Up to $5,000 |
| Excessive Site Location Design Fee | $500 per site location after four site locations |
| Transfer Fee | $10,000 plus our attorneys’ fees $5,000 plus out attorneys’ fees if the buyer is an existing franchisee |
| Renewal | $30,000 |
| Insurance | Will vary under certain circumstances |
| Audit | Cost of inspection or audit |
| Interest | Lesser of 1.5% per month or highest contract rate of interest allowed by law |
| Management Fee | To be determined under circumstances |
| Gift Card Fees | Currently $.25 cents per redeemed transaction |
| Costs and Attorneys’ Fees | Will vary under circumstances |
| Indemnification | Will vary under circumstances |
| Supplier Payments | Will vary under circumstances |
| Testing | Cost of testing |
| Relocation Expenses | Costs of relocation |
| Technology Fee | Estimated $300 per month |
| Development Schedule Extension Fee | $5,000 per Restaurant for an extension of up to 6 months for the dates to sign the Franchise Agreement and to open the Restaurant |
| Development Agreement Termination Fee | $10,000 for each Restaurant to be developed under your Development Schedule for which you have not signed a Franchise Agreement or paid an initial franchise fee |
| Territory Reservation Extension Fee | $10,000 |
How Much do Culver’s Franchise Owners Make?
Now, as someone looking to enter the franchise market you’d ask, “How much money am I going to make?” Well, let’s look at some statistics to understand this better. The average sales that a Culver’s franchise makes is $2.6 million and approximately 47% of the franchises are exceeding the average. The best performing state is Indiana as it produces $3.1 million of average sales while the worst performing state is Texas which averages slightly less than two million dollars in sales.
You can find a summary of these statistics in the graph below broken down by state.
Average Sales
~ Total
| Total Number of Franchised Restaurants | Average Sales | Number of Franchised Restaurants Exceeding the Average | Median Sales | Range Of Sales |
|---|---|---|---|---|
| 716 | $2,615,278 | 339 (47%) | $2,585,293 | $1,263,026 – $5,397,617 |
~ by State
| State | Total Number of Franchised Restaurants | Average Sales | Number of Franchised Restaurants that Exceeded the Average | Median Sales | Range of Sales |
|---|---|---|---|---|---|
| Alabama | 3 | – | – | – | – |
| Arizona | 32 | $2,629,312 | 16 (50%) | $2,621,175 | $1,707,661 – $4,109,350 |
| Colorado | 16 | $2,351,644 | 9 (56%) | $2,455,849 | $1,331,638 – $2,971,403 |
| Florida | 64 | $2,481,686 | 32 (50%) | $2,504,018 | $1,485,310 – $3,761,376 |
| Georgia | 17 | $2,061,107 | 10 (59%) | $2,078,242 | $1,263,026 – $2,661,652 |
| Idaho | 3 | – | – | – | – |
| Illinois | 115 | $2,465,386 | 54 (47%) | $2,448,426 | $1,431,011 – $3,564,119 |
| Indiana | 46 | $3,100,755 | 26 (57%) | $3,172,320 | $1,791,712 – $4,106,837 |
| Iowa | 34 | $2,427,016 | 18 (53%) | $2,444,890 | $1,575,280 – $3,397,858 |
| Kansas | 6 | $3,080,341 | 3 (50%) | $2,920,575 | $2,291,779 – $4,231,251 |
| Kentucky | 15 | $2,380,422 | 6 (40%) | $2,340,601 | $1,615,915 – $2,498,781 |
| Michigan | 63 | $2,700,353 | 31 (49%) | $2,699,999 | $1,807,075 – $3,681,802 |
| Minnesota | 58 | $2,657,828 | 30 (52%) | $2,685,672 | $1,464,040 – $4,130,331 |
| Missouri | 32 | $2,616,194 | 20 (63%) | $2,743,416 | $1,791,195 – $3,474,128 |
| Nebraska | 11 | $2,179,027 | 7 (64%) | $2,216,533 | $1,355,294 – $2,711,725 |
| North Carolina | 6 | $2,578,852 | 3 (50%) | $2,583,368 | $2,122,177 – $3,313,122 |
| North Dakota | 5 | – | – | – | – |
| Ohio | 13 | $2,495,680 | 4 (31%) | $2,343,885 | $2,181,131 – $3,420,725 |
| South Carolina | 5 | – | – | – | – |
| South Dakota | 13 | $2,338,350 | 5 (38%) | $2,292,184 | $1,729,755 – $3,329,485 |
| Tennessee | 7 | $2,285,542 | 2 (29%) | $2,190,215 | $1,722,085 – $3,403,147 |
| Texas | 11 | $1,908,571 | 4 (36%) | $1,773,254 | $1,279,587 – $3,278,253 |
| Utah | 11 | $2,283,451 | 4 (36%) | $2,144,682 | $1,279,587 – $3,278,253 |
| Wisconsin | 129 | $2,940,317 | 57 (44%) | $2,881,811 | $1,566,872 – $5,397,617 |
| Wyoming | 1 | – | – | – | – |
What Is the Payback Period for Culver Franchisees?
When opening a franchise, the first question investors ask is usually linked to the profit they’re going to earn. Using financials from Culver’s FDD, we can estimate the time it will take to recoup your $3.9 million initial investment if you decide to purchase Culver’s franchise. Below is a table showing the payback period with a 10%, 15%, and 20% profit margin.
Payback Period
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $3,900,000 | 10% | $260,000 | 17.5 years |
| 15% | $390,000 | 12.5 years | |
| 20% | $520,000 | 10.5 years |
Is the Culver Franchise Profit Worth the Franchise Cost?
Based on the CDD and midpoint investment profits calculations, you are expected to make your money back in 8 years with a 20% profit margin, 10 years with a 15% profit margin, and 15 years with a 10% profit margin. It is important to note that in the food and beverage industry, the expected time to scale up a franchise is 2.5 years. You must also recognize that a franchise’s geographic location, competition, and other factors will also affect the performance of sales and cost so we can expect a margin in the timeframe.
If you were to try and sell a Culver’s franchise, it would go for approximately $1.8 million; this is far less than the initial midpoint investment of $3.9 million. This is based on a valuation using the average annual sales and the multiplier (0.69) found from BRG.
However, this valuation is just for the Culver’s franchise business, not for the real estate and building, which is included in the $3.9 million investment.
Real Profit Is in the Sales Leaseback
To understand the profit that lies within sales leaseback for Culver’s, we must first understand what sales-leasebacks are in general. A sales leaseback is when you sell your building and land in order to obtain cash that you might need for other purposes while also continuing to use your building under a lease. With Culver’s you could perform a sales leaseback to generate profit while also managing your own business. Looking at two Culver Franchises for sale, the owner can expect another $2 to 4 million from the sale of the building and land! Not a bad return on investment if you sell for closer to $4 million.
Culver Franchise Income Statement Key Insights
Culver has made an improvement in terms of revenue since comprehensive earnings have increased from 2018 to 2019. The comprehensive earnings have crossed the $50 million mark and are $7 million higher than the previous year. This indicates growth in the company and is a positive sign for franchise investors.
