First Watch franchise is a breakfast and lunch restaurant franchise serving made-to-order breakfast, brunch and lunch using fresh ingredients. So, First Watch offers traditional favorites, such as omelets, pancakes, sandwiches and salads, and unique specialty items like quinoa power bowls, and avocado toast. 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. So, at the end of 2020, there were 88 franchised locations and 321 company-owned locations across 29 states in the United States.
Listen to this article
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. Additionally, in 2018 it was voted as one of the “Best Places to Work” by Business Intelligence Group.
The initial license fee for a First Watch franchise is $40,000. In other words, this is the upfront fee that must be paid when opening a First Watch franchise.
During the fiscal year 2020, to address certain business situations, First Watch charged a lower initial franchise fee ranging from $15,000 to $35,000.
The estimated total investment necessary to begin the operation of a First Watch restaurant ranges from $899,800 to $1,522,000.
The following costs are part of the upfront costs included in the initial investment. And many of these are one-time fees that are needed to launch the franchise.
Leasehold Improvements | $475,000 – $680,000 |
Leasehold Expense | $0 – $30,000 |
Furniture, Fixtures and Equipment | $230,000 – $325,000 |
Initial Inventory | $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 |
Royalty Fee: 4% of Gross Sales once a month
System Fund Contributions: Maximum – 3% of Gross Sales monthly; currently 1.5% of Gross Sales monthly.
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, let’s look at the performance of their corporate locations.
In 2020, Total restaurant sales were $337 million on 321 company-owned stores. And taking the 2019 year end company store count of 299 (as the new restaurants were in ramp-up mode), we can guestimate average sales of a First Watch restaurant of $1.12M. Assuming a profit margin of 10%, it is expected that the average First Watch restaurant made $112,000 in profit in 2020.
In 2019, Total restaurant sales were $429 million on 299 company-owned stores. So, taking the 2018 year end company store count of 240 (as the new restaurants were in ramp-up mode), we can guestimate average sales of a First Watch restaurant of $1.78M. Assuming a profit margin of 15%, it is also expected that the average First Watch restaurant made $268,000 in profit in 2019.
Based on a midpoint investment of $1.3M on $250k of profit and time to scale up, it is expected to take 5-6+ years to recoup your initial capital investment in a First Watch restaurant.
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.
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 depreciation 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) |
Interest 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 |
Overall, First Watch is not a profitable 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.
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 |
In 2020, First Watch had a net income of ($49.6) million, but their cash, cash equivalents and restricted cash were $39 million at the end of 2020 an almost 40% increase from the cash they started with at the end of the year. And this extra cash flow can also be seen from their financing activities as First Watch received $40 million in proceeds from preferred stock issuance.
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. Therefore, in 2020 there was an increase of 22 company-operated restaurants and 19 franchise locations. So, these numbers indicate the business overall is expanding.
While First Watch Restaurants did see losses of almost $50 million in 2020, the company also 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. And 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-established 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.
In conclusion, 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? Then, check out our listings page on the Vetted Biz website for thousands of franchises available for your investment.
The Goddard School is a franchised preschool learning center. Services are offered for children between 6 weeks and 10 years old.
Find out more about Jimmy Johns franchise, the huge market that sells gourmet sandwiches and other food and beverage products.
Kentucky Fried Chicken was founded by Harland Sanders in 1930 when he inaugurated the first Sanders Court & Cafe in Corbin, Kentucky.
WH Capital, L.L.C., or Waffle House, is an American restaurant chain with 2,100 locations in 25 states in the United States.
Franchise Wow Wow Hawaiian Lemonade closes before opening. Still no response for the money invested from the CEO. Find out what happened
Find out all you need to know about how a Domino’s Pizza franchise is a direct ticket to make millions on this article!
Learn how much it costs to open a Planet Fitness Franchise. We review the franchise fee, construction costs, ongoing fees and more!
Read this article to learn more about Raising Cane’s: America’s most popular chicken finger chain. A great business opportunity!
Read this article to discover a growing business opportunity. Wingstop Franchise: The most profitable fast food franchise this 2022.
Is the Shake Shack franchise the opportunity you were looking for? Read this article and find out if this business is the right one for you!
Do you know what a master franchisee is? Learn how you can get a master franchisee license, whether that’s in the United States or not.
Is Crumble Cookies franchise profitable? We give you a little update & review on the fastest growing cookie franchise in the United States.
We share with you today the best franchise podcast for you to start getting in the mood and you will understand which way is up.
How much is Starbucks worth? Does Starbucks franchise? Click here to learn in depth about their business model and what makes them successful.
Click here to learn in depth about their business model and what makes them successful. How much is Chipotle worth? How did they start?
Learn how SBA loans compare to other forms of financing including 401k rollovers, friends & family and more!
Interested in owning an Arby’s Franchise? Learn more about how much an Arby’s franchise cost, and the minimum requirements here!
How much does it cost to buy a Jan Pro commercial cleaning franchise? Learn about the minimum requirements, the owner salary and more here!
Regis Corporation is a company that operates various brands of hair salons throughout the world.
When you have a disability, finding work isn’t always easy. Moms and Women with disabilities face unemployment, find out more here.
In this analysis, we are going to look at Franchise Direct and talk about why it is not the best tool to use when starting your initial search for a franchise
During his NBA career Shaq accumulated $292 million in salary. Shaq is among the highest paid players ever in the NBA. So where does the other $100+ million come from?
This article is based on its 2022 FDD. Table of Contents Rollins, Inc. is a North American consumer and commercial services company. Through its subsidiaries, Orkin franchise, PCO Services (now called Orkin Canada), HomeTeam Pest Defense, Western Pest Services, Industrial Fumigant Company, TruTech, Critter Control, Crane, Waltham, OPC Services, PermaTreat, Northwest Exterminating, McCall Service and Clark […]
Looks like your subscription is due. Please renew to keep using our services.
You are going to downgrade your subscription.This action will proceed the difference in cost of plans and reset subscription period after moneyback.
You are going to upgrade your subscription.This action will proceed the difference in cost of plans and reset subscription period after moneyback.
You’re about to cancel your subscription. Please confirm by clicking on the “Cancel Subscription” button below.
Performing this action will delete your account.