Does First Watch Franchise?
Written By Brooks Gammill
Last Updated: September 24, 2021
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Is First Watch a franchiseA franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business model, brand and rights to sell its products and services. The franchisee signs a contract (franchise agreement) with the franchisor to acquire the franchise and generally has a territory granted to operate. What is a Franchise?… More?
First Watch is a breakfast and lunch restaurant franchise serving made-to-order breakfast, brunch and lunch using fresh ingredients. First Watch offers traditional favorites, such as omelets, pancakes, sandwiches and salads, and unique specialty items like quinoa power bowls, and avocado toast. First Watch also sells alcoholic beverages.
First Watch, Inc., opened the original First Watch Restaurant in Pacific Grove, California in 1983. First Watch, Inc. was dissolved on April 18, 2008. Then on April 30, 2008 First Watch Restaurants began to offer franchises. At the end of 2020 there were 88 franchised locations and 321 company-owned locations across 29 states in the United States.
Christopher A. Tomasso is the Chief Executive Officer and President and has been the Chief Executive Officer since June 2018 and the President since November 2015. The First Watch restaurant concept is majority owned by Advent International, one of the world’s largest private-equity firms. In 2018 2018 it was voted as one of the “Best Places to Work” by Business Intelligence Group.
How Much is a First Watch Restaurant Franchise?
First Watch Restaurant Franchise Fee
$40,000
The initial license fee for a First Watch franchise is $40,000. This is the upfront fee that must be paid when opening a First Watch franchise.
During fiscal year 2020, to address certain business situations, First Watch charged a lower initial franchise fees ranging from $15,000 to $35,000.
First Watch Franchise Cost
The estimated total investment necessary to begin operation of a First Watch restaurant ranges from $899,800 to $1,522,000.
Additional Cost Breakdown
The following costs are part of the upfront costs included in the initial investmentThe amount of funds necessary to begin operations of a business or franchise including the first three months of operation….. Many of these are one-time fees that are needed to launch the franchise.
Additional Cost Breakdown
| Leasehold Improvements | $475,000 – $680,000 |
| Leasehold Expense | $0 – $30,000 |
| Furniture, Fixtures and Equipment | $230,000 – $325,000 |
| Initial InventoryThe value of the total finished and unfinished goods and materials the business holds for future sale…. | $7,000 – $10,000 |
| Small Wares | $30,000 – $35,000 |
| Point of Sale Computer Hardware & Software | $30,000 – $35,000 |
| Travel and Living Expenses During Training | $1,000 – $20,000 |
| Initial Training Fee | $0 – $15,000 |
| Opening Crew Costs | $5,000 – $25,000 |
| Business Permits | $7,000 – $12,000 |
| Insurance Deposits and Premiums (for first year) | $2,000 – $10,000 |
| Architect Fees | $20,000 – $25,000 |
| Utility Deposits | $0 – $5,000 |
| Grand Opening Advertising and Promotion | $5,000 – $35,000 |
| Liquor Licensing | $2,800 – $80,000 |
| Signage and Graphics | $15,000 – $40,000 |
| Additional Funds (3 months) | $30,000 – $100,000 |
| Total | $899,800 – $1,522,000 |
Ongoing Costs and Fees
Royalty Fee: 4% of Gross SalesThe total amount in dollars made in the business before expenses are deducted. See also Gross Revenue…. once a month
System Fund Contributions: Maximum – 3% of Gross Sales monthly; currently 1.5% of Gross Sales monthly.
How Much Do Franchise Owners Make?
First Watch Franchise Sales Figures
First Watch does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or affiliate-owned or franchised outlets. The company also does not authorize employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, First Watch may provide you with the actual records of that outlet.
However, using the Franchisor income statementOne of the major financial statements focused on a business’s revenues and expenses in a particular period. It is also known as the profit and loss statement. The income statement includes the gross profit, earnings before tax, and net profit.Tax Returns: The forms a business makes on an annual statement of income and personal circumstances sent to the IRS to… we can deduce from look at the income statement line item “Franchise Revenue”:
Currently First Watch has a Royalty Fee of: 4% of Gross Sales and 1.5% of gross sales for the system fund contributions.
In 2020 franchise revenues were $4.955 million, therefore we know this is 5.5% of the total franchise sales of 88 franchise locations.
Estimated Total Franchise Sales: $90.09 million
Estimated Average Franchise Sales: $1.024 million
This is just an estimated sales based on the franchisor’s income statement and can vary greatly depending on the length that the particular franchise location has been open.
First Watch Franchisor Income Statement
First Watch Restaurant Consolidated Statements of Operations and Comprehensive Loss (In Thousands)
| FY 2020 | FY 2019 | |
|---|---|---|
| Revenues: | ||
| Restaurant sales | $ 337,433 | $ 429,300 |
| Franchise revenues | $ 4,955 | $ 7,064 |
| Total revenues | $ 342,388 | $ 436,373 |
| Operating costs and expenses: | ||
| Restaurant operating expenses (exclusive of depreciationA reduction in the value of an asset over time, due to wear and tear…. and amortization shown below): | ||
| Cost of sales | $ 76,975 | $ 100,689 |
| Labor and other related expenses | $ 120,380 | $ 148,537 |
| Other restaurant operating expenses | $ 63,776 | $ 59,402 |
| Occupancy expenses | $ 51,375 | $ 46,151 |
| General and administrative expenses | $ 46,322 | $ 55,818 |
| Depreciation and amortization | $ 30,725 | $ 28,027 |
| Impairments and loss on disposal of assets | $ 315 | $ 33,596 |
| Transaction (income) expenses, net | $ (258) | $ 1,709 |
| Total operating costs and expenses | $ 389,610 | $ 473,929 |
| Loss from operations | $ (47,222) | $ (37,556) |
| InterestA payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate. In Vetted Biz, it is typically the additional rate of a loan a business buyer would pay off over time to borrow in purchasing a business…. expense | $ (22,815) | $ (20,080) |
| Other income (expense), net | $ 483 | $ (255) |
| Loss before income tax benefit | $ (69,554) | $ (57,891) |
| Income tax benefit | $ 19,873 | $ 12,419 |
| Net loss and total comprehensive loss | $ (49,681) | $ (45,472) |
| Less: Net loss attributable to non-controlling interest | – | $ (33) |
| Net loss and comprehensive loss attributable to First Watch Restaurant Group, Inc. | $ (49,681) | $ (45,439) |
| Net loss per common share attributable to Fist Watch Restaurant Group, In. – basic and diluted | $ (13.07) | $ (11.95) |
| Weighted average number of common shares outstanding – basic and diluted | $ 3,802,481 | $ 3,802,481 |
First Watch Income Statement Key Insights
Overall, First Watch is not a profitableWhen the earnings in a given period of time is more than the expenses in a business…. business, with a net loss of $49.6 million in 2020. First Watch also saw a revenue decrease of 21% in 2020 with revenues of $337 million. Franchise Revenues also saw a decline of nearly 30% in 2020 to $4.95 million compared to $7 million the year prior.
The biggest expense on the income statement for First Watch Restaurant Group is labor and other related expenses accounting for $120 million.
First Watch Franchisor Cash FlowThe net profit before taxes plus payments to the owner(s), interest, and depreciation of assets…. Statement
First Watch Restaurant Consolidated Statements of Cash Flows (In Thousands)
| FY 2020 | FY 2019 | |
|---|---|---|
| Cash flows from operating activities: | ||
| Net loss | $ (49,681) | $ (45,472) |
| Adjustment o reconcile net loss to net cash (used in) proved by operating actives: | ||
| Depreciation and amortization | $ 30,725 | $ 28,027 |
| Deferred income taxes | $ (19,991) | $ (12,558) |
| Non-cash operating lease costs | $ 11,727 | $ 10,772 |
| Amortization of debt discount and deferred issuance costs | $ 1,282 | $ 1,128 |
| Impairments and loss on disposal of assets | $ 315 | $ 33,596 |
| Stock-based compensation | $ 750 | $ 1,160 |
| Settlement gains from acquisitions | – | $ (160) |
| Changes in assets and liabilities, net of acquisitions: | ||
| Accounts receivable | $ 1,826 | $ (3,192) |
| Inventory | $ (203) | $ (439) |
| Prepaid expenses | $ 619 | $ (439) |
| Deferred offering costs | $ 1,307 | – |
| Other assets, current and tong term | $ (446) | $ (1,094) |
| Accounts payable | $ (886) | $ (740) |
| Accrued liabilities | $ (3,670) | $ 5,566 |
| Accrued compensation and deferred payroll taxes, current and long-term | $ 2,929 | $ 643 |
| Deferred revenues, current and long term | $ (3,060) | $ 2,024 |
| Operating lease liabilities | $ 8,073 | $ 3,101 |
| Other liabilities | – | $ (458) |
| Net cash (used in) provided by operating activities | $ (18,364) | $ 21,465 |
| Cash flows from investing activities: | ||
| Capital expenditures | $ (26,974) | $ (59,169) |
| Purchase of intangible assets | $ (225) | – |
| Acquisitions net of cash acquired | – | $ (22,770) |
| Acquisition of non-controlling interest | – | $ (450) |
| Net cash used in investing activities | $ (26,974) | $ (82,389) |
| Cash flows from financing activities: | ||
| Proceeds from preferred stock issuance | $ 40,000 | – |
| Proceeds from issuance of long-term debt | $ 54,600 | $ 50,000 |
| Repayments of long-term debt | $ (3,947) | $ (2,099) |
| Proceeds from borrowings on revolving credit facility | $ 22,000 | $ 42,000 |
| Repayments from borrowings on revolving credit facility | $ (39,000) | $ (32,500) |
| Payment of debt issuance costs | – | $ (915) |
| Finance lease payments | $ (339) | $ (500) |
| Contingent consideration payment | – | $ (225) |
| Net cash provided by financing activities | $ 73,314 | $ 55,761 |
| Net increase (decrease) in cash and cash equivalents and restricted cash | $ 27,976 | $ (5,163) |
| Cash and cash equivalents and restricted cash: | ||
| Beginning of year | $ 11,121 | $ 16,284 |
| End of year | $ 39,097 | $ 11,121 |
First Watch Cash Flow Statement Key Insights
In 2020, First Watch had a net income of ($49.6) million, but their cash, cash equivalents and restricted cash was $39 million at the end of 2020 an almost 40% increase from the cash they started with at the end of the year. This extra cash flow can also be seen from their financing activities as First Watch received $40 million in proceeds from preferred stock issuance.
How many First Watch units have opened and closed?
Steak n Shake Consolidated Statements of Comprehensive Income (Dollars in thousands)
| Outlet Type | Year | Outlets at Start of Year | Outlets at End of Year | Net Change |
|---|---|---|---|---|
| Franchised | ||||
| FY18 | 47 | 55 | +8 | |
| FY19 | 55 | 69 | +14 | |
| FY20 | 69 | 88 | +19 | |
| Company-owned | ||||
| FY18 | 193 | 240 | +47 | |
| FY19 | 240 | 299 | +59 | |
| FY20 | 299 | 321 | +22 | |
| Total outlets | ||||
| FY18 | 240 | 295 | +55 | |
| FY19 | 295 | 368 | +73 | |
| FY20 | 368 | 409 | +41 |
As seen in the table above both First Watch franchise locations and company-operated locations have increased over the past two years. In 2020 there was an increase of 22 company-operated restaurants and 19 franchise locations. These numbers indicate the business overall is expanding.
Conclusion
While First Watch Restaurants did see losses of almost $50 million in 2020, the company had to react and adjust to the limited demand caused by COVID-19 for three quarters of 2020. Franchise locations during this time did grow by 19 in 2020. First Watch has the potential for a promising future as the company recently filed for an Initial Public Offering (IPO) which would raise large amounts of additional capital to expand and increase their market share in the daytime restaurant industry. Read more on the news of the company’s potential IPO.
First Watch is already in a well-establishedA business that has been running for at least ten years market. The restaurant business is highly competitive, and competition among businesses serving food is rapidly increasing. First Watch’s competitors include Broken Egg Cafe, IHOP, and Waffle House.
We strongly recommend you speak to at least 5 First Watch franchisees to better understand the financials (see questions to ask).
Think First Watch is the right franchise for you, or are you interested in other franchise opportunities in the food and beverage industry? Check out our listings page on the Vetted Biz website for thousands of franchises available for your investment.
