Here’s What You Need to Know Before Opening an Einstein Bagel Franchise (2024)
Einstein Bros. Bagels is an American chain that specializes in bagels and coffee. They currently have 390 locations.
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How is Einstein Bagel 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 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.
How Much is an Einstein Bagel Franchise?
The initial Einstein Bagel Franchise Fee is 35,000. You have to pay this upfront fee when opening an Einstein Bagel franchise. There are other pre-opening costs detailed below:
Pre-Opening Costs – Franchised Restaurants
| Type of expediture | Amount | To Whom Payment Is To Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $35,000 | Us | |
| Design Review Fee | $2,000 | Us | |
| Real Estate leasing | $25,000 | $56,250 | Landlord or land owner |
| Opening Inventory, Smallwares and Supplies | $15,000 | $25,000 | Us and suppliers |
| Initial Marketing and Promotion | $10,000 | Suppliers | |
| Insurance | $7,500 | $15,000 | Insurance Providers |
| Training Expenses | $1,000 | $14,000 | Suppliers and employees |
| Miscellaneous Opening Costs | $1,300 | $3.600 | Suppliers and employees |
| Business Licenses | $500 | $5,000 | Government Agencies |
| Security Deposits | $4,000 | $10,000 | As Negotiated |
| Additional Funds (three months) | $12,000 | $50,000 | Us, suppliers, employees and other creditors |
| Sub-Total Pre-Opening Costs for Franchised Restaurants | $113,300 | $225,850 | |
Einstein Bagel Franchise Cost
The estimated total investment necessary to begin the operation of an Einstein Bagel Franchise ranges from $451,000 to $710,000. The following costs are part of the upfront costs included in the initial investment for an Einstein Bagel. 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 Einstein Bagel franchise in 2022.
Estimated Initial Investment
| Type of expediture | Amount | To Whom Payment Is To Be Made | |
|---|---|---|---|
| Low | High | ||
| Construction Costs | $210,000 | $310,000 | General Contractors and suppliers |
| Computer Equipment & Electronics | $26,000 | $54,000 | Suppliers and Us |
| Furniture, Fixtures & Equipment | $175,000 | $261,000 | Suppliers |
| Signage & Graphics | $10,000 | $50,000 | Suppliers |
| Professional Fees (incl. architectural or engineering fees and permit and impact) | $30,000 | $35,000 | Service Providers; Architects or Engineers; Government Agencies |
| Sub-Total Development Costs for Franchised Restaurants | $451,000 | $710,000 | |
Ongoing Fees
Royalty: 5% of Gross Sales under the Franchise Agreement and 6.5% of Gross Sales under the License Agreement (reduced to 4% of Gross Sales for airport locations)
Marketing Fee: 4% of Gross Sales under the Franchise Agreement
Grand Opening Marketing Program: $10,000 under the Franchise Agreement
How much do Einstein Bagel franchise owners make?
| Franchised Restaurants | |
|---|---|
| Median Gross Sales | $873,150 |
| Average Gross Sales | $885,011 |
2021 Einstein Bagel Median Franchise Sales: $873,150
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $580,500 | 10% | $87,315 | 8 years |
| 15% | $130,972 | 6 years | |
| 20% | $174,630 | 5 years |
Based on the median sales provided by Einstein Bagel’s franchise locations, at an average of a 15% profit margin it will take around 6 years to recoup your investment. This is slightly more 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; the extent of market penetration and brand awareness that Einstein Bagel stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Einstein Bagel 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 an Einstein Bagel franchise based on the median multiple of .55 and net sales in 2021 of $873,150, it would sell for $480,232. This is slightly lower than the midpoint investment of $580,500.
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.
Caribou Coffee (Franchisor) Income Statement Key Insights:
Statement of Income
| (in thousands) | Fiscal Year Ended | |
|---|---|---|
| December 28, 2021 | ||
| Coffeehouse and bagel bakery sales | $709,744 | |
| Franchise royalties and fees | $20,000 | |
| Franchise advertising sales | $3,524 | |
| Franchise and commercial product sales | $124,196 | |
| Net Sales | $857,464 | |
| Cost of goods sold | $173,808 | |
| Labor | $221,362 | |
| Occupancy | $80,742 | |
| Other operating expenses | $101,794 | |
| Total coffeehouse and bagel bakery expense | $577,706 | |
| Franchise operations and other expenses | $2,357 | |
| Ad fund expense franchise | $3,524 | |
| Franchise and commercial product cost of goods sold | $94,319 | |
| Depreciation and amortization | $41,502 | |
| General and administratrive expenses | $71,892 | |
| Pre-opening expenses | $1,109 | |
| Total costs and expenses | $792,409 | |
| Operating income (loss) | $65,055 | |
| Interest expense, net | $17,831 | |
| Other (income) expense | ($1,029) | |
| Pre-tax income (loss) | $48,253 | |
| Income Tax expense (benefit) | $10,741 | |
| Net income (loss) | $37,512 | |
| Less net income (loss) attributable to noncontrolling interest | $1,480 | |
| Net income (loss) attributable to Caribou Coffee Company, Inc. | $36,032 | |
Einstein Bagel is a very profitable business for the franchisor who retained earnings of $36.03 million in 2021. Compared to a loss of $16.56 million in 2020, this is a good indication of high growth as a company overall.
How many Einstein Bagel 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 | 50 | 52 | 2 |
| 2020 | 52 | 53 | 1 | |
| 2021 | 53 | 54 | 1 | |
| Company-Owned | 2019 | 359 | 353 | -6 |
| 2020 | 353 | 337 | -6 | |
| 2021 | 337 | 322 | -5 | |
| Total Outlets (United States) | 2019 | 409 | 405 | -4 |
| 2020 | 405 | 390 | -15 | |
| 2021 | 390 | 390 | 0 |
Over the last three years, the company has been in decline. Franchising units have increased but company-operated stores have decreased. Over the last three years, stores have closed at a rate of 11 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
Einstein Bagel offers people the opportunity to be a part of a business that has amazing returns and it offers a reasonable payback period. 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.
