Does Jollibee Own Smashburger Franchise?
Jollibee is a Filipino multinational company based in Pasig, Philippines. After its massive success in the Philippines, it started buying brands in other countries. In October 2015, Jollibee announced that it was acquiring a 40-percent stake in Smashburger. In December 2018, Jollibee went on to acquire 100 percent of the shares in Smashburger, gaining full control of the American hamburger chain. Keep reading to find the complete history of Jollibee and Smashburger Franchise metrics.
Jollibee History
In 1975, Tony Caktiong and his family opened a Magnolia ice cream parlor in Cubao, Quezon City, Philippines. When food items became more popular than ice cream, the family decided to convert the ice cream parlor into a fast food restaurant, which became the first Jollibee outlet in 1978. Jollibee was initially named “Jolibe,” but changed its name to “Jollibee.”
Jollibee was able to withstand the entry of McDonald’s in the Philippines in 1981 by focusing on the specific tastes of the Filipino market, which differed from the American fast food company. The first provincial Jollibee outlet opened in Barangay Dau of Mabalacat, Pampanga. The first Jollibee store overseas, in Taiwan, opened in 1986 but is now closed. Jollibee continued to expand and set up outlets both within the country and abroad. In 1995 Jollibee introduced the Burger Steak to its menu. In 2021 Jollibee announced that they planned to open 509 stores in the U.S. and Canada.
Tony Caktiong: Jollibee Founder
Tony Tan Caktiong is a Filipino billionaire businessman. He is the founder and chairman of Jollibee Foods Corporation, and the co-chairman of DoubleDragon Properties.
In early 2006, Jollibee Foods Corporation bought out the remaining shares of its partners in Greenwich Pizza Corporation, equivalent to a 20% stake, for P384 million in cash. As of August 2008, Tan Caktiong’s Jollibee has a total of 1,480 stores worldwide including Jollibee, Red Ribbon, Chowking, Greenwich, Manong Pepe’s, and Mang Inasal.
As of November 2015, Forbes estimated his net worth at US$4.1 billion.
Smashburger
Smashburger is a fast-casual hamburger restaurant chain founded in Denver, Colorado. As of 2022, it had more than 219 corporate and franchise-owned restaurants
How Is Smashburger 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 36% of the total franchise establishments in the U.S. and it is expected to create 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
How Much Is a Smashburger Franchise?
The initial Smashburger Franchise Fee is $40,000. You have to pay this upfront fee when opening a Smashburger franchise
Smashburger Franchise Cost
The estimated total investment necessary to begin the operation of a Smashburger Franchise ranges from $941,860 – $2,017,426. The following costs are part of the upfront costs included in the initial investment for a Smashburger. 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 Smashburger franchise in 2022.
Estimated Initial Investment
| Type of expediture | Amount | To Whom Payment Is To Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Fees | $40,000 | Us | |
| Leasehold Improvements | $711,600 | $1,126,426 | Landlord/Suppliers |
| Furniture, Fixtures and Equipment | $75,800 | $329,700 | Suppliers |
| Signage | $8,300 | $33,600 | Suppliers |
| IT, POS System | $17,800 | $45,200 | Suppliers |
| Three Month’s Rent | $12,000 | $77,000 | Landlord |
| Security Deposit, Business Licenses | $1,560 | $50,000 | Landlord, Suppliers, Professional Svc, Firms |
| Opening Inventory and Suppliers | $15,000 | $20,000 | Suppliers |
| Grand Opening Advertising | $10,000 | Suppliers | |
| Training Expenses | $21,400 | $184,200 | Suppliers and Employees |
| Grand Opening Assistance | $0 | $30,000 | Us |
| Miscellaneous Opening Costs | $500 | $5,000 | Suppliers, State Agencies and Employees |
| Professional Fees | $5,000 | $15,000 | Supplier Professionals |
| Insurance Premiums – 3 Months | $10,000 | $20,000 | Insurance Carrier |
| Liquor Licensing | $1,400 | $9,800 | Suppliers and Government Agency |
| Lease Review Fee | $1,500 | Us or Our Affiliates | |
| Additional Funds – 3 Months | $10,000 | $20,000 | Suppliers and employees |
| TOTAL ESTIMATED INITIAL INVESTMENT | $941,860 | $2,017,426 | |
Smashburger Franchise Requirements
Smashburger requires that you have a proven track record in the restaurant industry with access to $500,000 liquid assets and a net worth of $2M.
Owning a Smashburger Franchise Requires Ongoing Fees
Royalty: 5.5% of Gross Sales
Marketing Fee: Currently 2.25% of Gross Sales, but up to 4% of Gross Sales
Local Marketing: Up to 3% of Gross Sales (currently this requirement is not imposed)
Local Advertising: Up to 3% of Gross Sales
How Much Do Smashburger Franchise Owners Make?
| Number of Mature Traditional Restaurants | Average | # of Units Exceeding Average | Median | Highest | Lowest |
|---|---|---|---|---|---|
| 172 System Wide Mature Restaurants | $1,096,864 | 69 (40.1%) | $1,031,282 | $3,383,195 | $270,664 |
| 114 Affiliate-Owned Mature Restaurants | $1,177,810 | 44 (38.6%) | $1,103,973 | $3,383,195 | $580,920 |
| 58 Franchisee-Owned Mature Restaurants | $937,764 | 25 (43.1%) | $893,714 | $2,570,517 | $270,664 |
2021 Smashburger Median Franchise Sales: $1,031,282
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $1,479,643 | 10% | $103,128 | 16 years |
| 15% | $154,692 | 11 years | |
| 20% | $206,256 | 8.5 years |
Based on the median sales provided by Smashburger’s franchise locations, at an average of a 15% profit margin it will take around 11 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.
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; and the extent of market penetration and brand awareness that Smashburger stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Smashburger Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Smashburger 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 * 0.55
When you go to sell a Smashburger franchise based on the median multiple of .55 and net sales in 2021 of $1,031,282, it would sell for $567,205. This is significantly lower than the midpoint investment of $1,479,643.
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.
Smashburger (Franchisor) Income Statement Key Insights
| Years ended December 31, | |||
|---|---|---|---|
| 2021 | 2020 | 2019 | |
| REVENUES: | |||
| Royalty Fees | $5,828 | $5,397 | $8,484 |
| Franchise Fees | 351 | 1,299 | 1,619 |
| Total Revenue | 6,179 | 6,696 | 10,103 |
| COSTS AND EXPENSES | |||
| Servicing expense- affiliate | 5,771 | 6,263 | 9,538 |
| Intellectual property licensing expense – affiliate | 182 | 198 | 301 |
| Bad debt expense | 104 | 129 | 48 |
| Total costs and expenses | 6,057 | 6,590 | 9,887 |
| OTHER INCOME AND EXPENSE | |||
| Interest (expense) income | 46 | (4) | 1 |
| NET INCOME | $168 | $102 | $217 |
Smashburger is a very profitable business for the franchisor with retained earnings of $168,000 in 2021. Compared to $217,000 in 2019, they saw a decrease of 23% from 2019 to 2021. This is a good indication of high growth as a company overall.
How Many Smashburger 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 | 127 | 116 | -11 |
| 2020 | 116 | 98 | -18 | |
| 2021 | 98 | 91 | -7 | |
| Company-Owned | 2019 | 196 | 161 | -35 |
| 2020 | 161 | 115 | -46 | |
| 2021 | 115 | 128 | 13 | |
| Total Restaurants | 2019 | 323 | 277 | -46 |
| 2020 | 277 | 213 | -64 | |
| 2021 | 213 | 219 | 6 |
Over the last three years, the company has been in decline. Both franchising units and company-operated stores have decreased. Over the last three years, franchises have closed at a rate of 12 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
Smashburger is a franchise that exists in an industry that is already seeing very intense competition from brands like KFC, McDonald’s, and Popeye’s. As such, it might be difficult to break in and that can be seen in the franchise numbers.
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.
