Patrick: Hey, Patrick Findaro here, co-founder at Vetted Biz and managing partner at Visa Franchise. At Vetted Biz, we help you find, vet, and buy a franchise or business for sale across the United States. Today, I’m really excited to have on the head of Chill-N Nitrogen Ice Cream, leader in the nitrogen ice cream space, an emerging franchise, although they were founded in 2012 really in the beginning of this industry, David Leonardo has very extensive experience in franchising finance, gained at JP Morgan, Arby’s, Burger King here in Miami, and the founder of Chill-N Nitrogen Ice Cream.
So today we’ll talk all about the ice cream industry, particularly the nitrogen ice cream industry, how they’re currently positioned during COVID, the brand Chill-N Nitrogen Ice Creamand just general insights into franchising from a very experienced franchise executive David Leonardo. So again, you know, for Vetted Biz, if you’re interested in finding a franchise, finding a business for sale, we encourage you to check out our website.
Right now we have 1,800 franchises available, Chill-N is one of the, I think, the only nitrogen ice cream franchise we have available on the site, and you can compare that with other ice cream franchises and other franchises in different industries.
As well as we have over 1500 existing business listings, principally in the state of Florida that I encourage you to take a look at. Again, you know, for Franchise Fridays, we bring on senior-level executives and/or founders of leading franchises across the United States. I’m gonna go ahead and add David to the live feed. Hey, David, how are you doing?
David: Hey, Patrick. Nice to join you.
Patrick: No, thanks for taking the time to connect. So we would love to just hear a little more about your background. I worked at JP Morgan right out of college, you worked there I believe in investment banking, then you entered the franchise space and now you’re the CEO of an emerging ice cream franchise. Could you just tell me a little bit more about your background and then also maybe a little bit about Chill-N?
David: Yeah, sure, sure. Happy to share a little bit of that odyssey. So I started my career in investment banking doing mergers and acquisitions for Latin America with JP Morgan and really got a very strong foundation in finance and corporate finance and kind of understanding what it takes to buy and sell companies.
At around that time, kind of the .com era was taking off and I was lured down to Miami to work in a .com and a startup business and help them raise some funds.
And when we sold that company, I decided that Miami was really the place for me to stay. And sure enough, Burger King at the time was headquartered here, still is headquartered here, and was looking for someone to assist them with a lot of their acquisition and merger strategy. It seemed like my background fit with what they were looking for, and that was my first foray in franchising.
And so sure enough, I took a couple of different roles in strategy and finance, but eventually the franchising department approached me about potentially assisting them with trying to attract private equity groups and large investors to buy large blocks of restaurants that were distressed at the time and seeing how they could potentially turn those around.
Patrick: And was this common at this place or was this more on the forefront?
David: Common at Burger King?
Patrick: Just for private equity groups to buy, you know, multi-operators?
David: That’s a good question. I think at the time it wasn’t as common for private equity groups to even look at franchising. I think it was something that to our end, it was only attractive to them because they could buy large blocks of stores and turn them around.
But the industry is not as involved in the franchising space as it is today, and that’s obviously just because the sheer amount of capital-chasing deals has multiplied at a great extent. So, you know, I’ve obviously helped them in that regards but also talking to different investors about coming into the brand, and obviously Burger King carries a lot of great brand equity with it.
And so was able to parlay that and go work for Arby’s doing domestic and international work. Arby’s then bought out Wendy’s and did some international work for them and really kind of developed the expertise in talking to investors and understanding what is it that investors are looking for so they can invest in a franchise?
So not only was I representing these big brands but here I was listening to whether it’s a mom and pop investor or whether it was a private equity investor, understanding what are the things that they’re going to be focusing on in terms of determining whether that’s an investment that they wanted to make?
And sure enough, shortly, about three years ago, I was having my first child here in Miami, and decided that I didn’t want to travel nonstop. All of these jobs with the exception of Burger King was pretty much requiring me to be on a plane all week long.
And so that’s when I was approached by the family here down in Miami to help them with a project that they had, which is basically taking a small mom and pop, you know, ice cream chain and building the infrastructure to sell franchises.
Patrick: And what year was that? When did you join?
David: This was 2019, beginning of 2019.
David: And so that’s something that was really exciting for me. I got a chance to kind of really get my hands wet and really started a franchising department from scratch whereas before, historically, I’ve really been a part of a franchising department already in place. And so there’s a lot of advantages that come with that because I got to actually develop the franchising division exactly how I envisioned it.
So all of those questions and all of those challenges that previous investors always brought up, you know, why don’t you do this? And why don’t you do this? Why can’t I do this? And, you know, those are really hard to implement in brands that have thousands and thousands of units.
But here in a small organization, I was able to kind of pull on that experience and really try to develop a franchising system that could be attractive to almost any type of investor.
Patrick: And I imagine also the cultural fit, you know, at the end of the day, what, it’s a 10-year agreement? How long do you sign an agreement for?
David: That’s right, it’s a 10-year agreement.
Patrick: Like a marriage.
David: Yeah, that’s right, that’s what we say, right? You’re pretty much looking at someone for the next 10 years, and most of them are gonna renew for another 10 years, so this is pretty much a marriage. So I always try to tell people that I need to make sure that I get along with people. Forget about whether you’re…
Patrick: For sure.
David: Do I want to go have dinner with you, right? Do I want to go have a drink with you? That’s really gonna determine whether I decide on improving you. And frankly, it should determine whether you want to become a part of a system here as well.
Patrick: Exactly. And we’ve seen that a lot of the top franchise systems especially once they get, you know, 10, 20, 30 locations open most of their revenues come in from royalties and just really supporting the franchisee and growing together rather than, you know, there’s been some big franchisors that declared bankruptcy, like BurgerIM or MidiCi’s Pizza that sold hundreds of franchises and they were just in it to get the quick buck.
David: Yeah, look, I think that’s, unfortunately, that mistake keeps repeating itself, you know, over the years and you would think that people learn. But your first 10 to 20 franchisees are the most important factor for you as a franchisor, right? So these are the franchisees that are gonna help validate for future investors to come on board but they’re also going to determine, really, the strength of the system, kind of the foundation of that system moving forward.
So if you can imagine a franchisor if you sign up your first five franchisees and three of them close because they don’t have enough liquidation, forget about the brand, let’s just say, they don’t have enough capital.
Patrick: They have run out of the capital, they’re horrible operators.
David: They don’t have the capital, they don’t have the right business acumen or they just don’t plan on dedicating enough time and effort, you’ve just now, you know, destroyed all future growth because you were so focused on trying to get some early wins, you know?
So we’re extremely focused on making sure that the first set of franchisees that we bring in are the right ones for us not just for the brand today, but that can help validate going on into the future.
Patrick: For sure. We have a question from Norita, “How much money do you need for this?” How much money does it cost to open up a Chill-N Nitrogen Ice Creamfranchise?
David: So I’m gonna give you the total, total number, and that includes three months of rent, three months of working capital, all your equipment, everything from soup to nuts, it’ll probably cost you anywhere from $250,000 to $350,000, and that range depends on the condition of the real estate that you’re looking at.
So if by any chance the place was a previous subway, or it was a sushi place and it has a bathroom, it has a kitchen, it has the plumbing, and you just have to do some basic remodeling and putting their equipment, you might be closer to that 300 closer, you know, even less. But if you basically get a blank vanilla box, you might be spending about $350,000 to invest in it.
Patrick: And are you seeing many opportunities in Florida for second-generation locations where it was, you know, a sushi concept that wasn’t able to adapt to COVID? You know, are there opportunities for, you know, keeping the costs on the lower end?
David: Yeah, that’s a great question, Patrick. I mean, I think, you know, it’s a product of our times, but we’re seeing a lot, a lot of opportunities come our way. We just took advantage of an opportunity in Coconut Grove to take over a poke bowl place, in Coconut Grove, a great location, right by CocoWalk and we just opened up in November.
Now, listen, it’s obviously beneficial for us to keep looking for these sites because we’ve actually had really good performance since COVID started. So unlike a lot of restaurateurs, you know, the last several months for us have been really positive sales as people have been looking to ice cream as somewhat of a guilty pleasure and something that can help alleviate a little bit of the anxiety that everybody’s going through during these times.
Patrick: And tell us, you know, why nitrogen and ice cream? I’ve had it, it’s delicious. But for someone that hasn’t had your ice cream before, what’s the benefit of liquid nitrogen? How did that get started?
Patrick: Yeah, listen, I think liquid nitrogen is actually always, I mean, it’s 78% of the air we breathe in has nitrogen in it, right? So all we’re doing is taking that component and liquefying it and storing it in a tank. That is basically a negative 320 plus degrees. So what that does is you pour that into a bowl, we have bowls that you pour the cream into.
So we have our farms right here in Florida, they send us the milk and the cream, and we basically pour that into a bowl, pour your ingredients. And then when you pour liquid nitrogen into that bowl it immediately freezes the cream and turns it into ice cream instantly.
So we live in a world today where everybody wants a farm to table, everybody wants something made fresh. It is literally as if you were ordering fish and someone went in the back, fished it off, you know, the backyard on the ocean and then brought it back in and cooked it for you.
That’s, in essence, what we’re doing. I mean, we’re making it as fresh as possible for the consumer. Your traditional ice cream is made in a factory hundreds of miles away with additives and preservatives and then shipped to your shop, your local shop, and it sits there in the freezer for maybe two to three months before it goes bad and people have to throw away whatever isn’t sold.
Patrick: I love all the toppings and, you know, I’m a big kid inside, but I’m sure the kids go crazy, you know, being able to select all the different toppings they include in.
David: Yeah. So our small ice cream costs right under $5, but for every mix-in and topping it’s $0.60 cents and so, yeah, we see a lot of parents having to stop their kids, you know, with the mix-ins because they go a little crazy.
We live in a world where customization is everything, right? So you read what’s on the menu and then you ask the waiter, yes but can you change this and this? And so they go back to the chef and the chef does exactly what you want and we’re doing the same, right?
One of the cool advantages that we have because we don’t have freezers is we can make your ice cream out of a multiple number of bases. So we can make your traditional ice cream out of regular cream, like everybody’s ice cream is made, but we can also make it out of almond milk, oat milk, coconut milk, we can make it out of yogurt and we can make it out of tart.
So you have five additional bases right there that you can make your ice cream out of. Let’s say you were a vegan, you know, or let’s say that you have dairy allergies, or your child has dairy allergies, these are things that are really cool especially in today’s world where everybody wants everything customized.
Patrick: And you probably want to have like the whole family come or extended family like six people and you don’t want to have them have to choose different places because you can serve them?
David: That’s right. Well, you remember from your time at Burger King, I guess, right?
Patrick: My brother worked at Burger King.
David: I’m sorry, it was your brother who worked at Burger King. But, you know, we used to always worry about the veto vote, right? Like, I mean, you have a busload of kids that want Burger King, but the mom wants a salad, you know, you have to kind of find a place that has both. So, you know, the kids could get the regular ice cream and the mom can get the vegan coconut milk-base ice cream, right?
Patrick: Exactly. And tell me, I mean, you’ve worked with burgers and more traditional food items that have been around 50, 100 years, do you think this is a fad? Like any possibility to that?
David: You know, we’re not seeing that. I mean, the truth of the matter is that we’ve been around since 2012, and we still continue to see a growth in our customer base. Honestly, all we’re doing is changing the way that people are making ice cream, and that little difference of changing the way is basically increment– you know, the cost of the nitrogen, right?
And the cost of nitrogen is extremely, extremely low here in this country. We have a national supplier that comes to the store about once a week, connects the piping to the outside of the store, and fills your tank up.
So the good thing about it as well is that it’s an automated process, so technology plays a big role in the way we execute. We can actually serve up to 110 cups of ice cream per hour because all our employees are doing is typing in the order to dispense the cream and then typing in the order to have the mixer move and dispense the liquid nitrogen automatically depending on your order.
So all of this automation is allowing us to serve more people with less amount of labor. And honestly, at the end of the day, the reason it’s not a fad is because people come in for the first time maybe because of that show, right? You get to see the smoke and it’s great and stuff, but ultimately you’re coming back because of the value and the taste, and we’re really proud of the taste and the reviews that we’re getting.
Patrick: The texture too. Some ice cream shops it’s like you basically there’s ice and…
David: Right, right. Well, actually, you know, that’s a funny thing you say, but in essence one of the advantages of the texture and the creaminess finish is because there’s actually smaller ice crystals. So the liquid nitrogen is so cold that the ice crystals end up being much smaller and thus ends up being a creamier finish.
Patrick: And how would you compare it to like gelato? There’s been kind of…that’s been on the uptick. How do you guys position yourselves with that segment?
David: Look, I think one of the advantages that we have over gelato in a lot of different places is obviously the waste factor, right? We’re only consuming what we use. And so if you go into your gelato place, you have a wide selection of stuff, but the freshness of it is sometimes something you can always ask and find out about it.
But we like the fact that we can make your ice cream right there on the spot, and you can’t get anything as fresh as literally directly made two minutes before you ordered it, or two minutes after you ordered it, anywhere else.
And so the freshness I think is a big advantage over a lot of those individual gelato places, but it really depends on what you’re looking for. I mean, we’re not gonna knock anyone else, but we definitely think we have a unique offering.
Patrick: And, you know, it’s December 2020, who would have thought this year would have turned out like this? How are you guys doing right now in terms of financially and strategically with COVID?
David: So look, knock on wood, 2020 is turning out to be a better year than 2019. It’s been a wild ride, I’ll definitely admit that, but I will tell you that we took some initiatives in the first couple of months that have really paid dividends for us.
One of the biggest things we did was that we actually used to do about 10% delivery with our product and that shot up to about 90% delivery with our product. Now, I think the most common question we get is how does ice cream deliver?
Remember, we’re actually dispensing liquid nitrogen into the bowl to make your ice cream. What we do is we make your ice cream just like we would for anyone coming into the store and then we dip it into a container that’s full of liquid nitrogen, that container literally basically freezes the entire cup of ice cream to almost into a block so that we put it in a bag, give it to the delivery guy, give it to yourself and it’s good for about 15 minutes.
So by the time you get home, literally you’re opening it and it’s as if somebody was handing it to you over the counter.
That little operational difference has really allowed us to execute the delivery extremely, extremely well whereas competing ice cream chains have a little bit of a hard time doing that. So that’s something that’s really, really played to our advantage.
I’m happy to say that October sales were up double digits, November sales were up double digits and December so far is up 12% year, you know, month to date. So we’re really happy with the performance so far.
Patrick: That’s incredible. And tell me about if someone’s interested in the brand and wants to invest, like, what are a few different models? Like could they be less active? You know, can they open up multiple locations? Tell us a little bit about what options exist for investing in a Chill-N Nitrogen Ice Cream franchise?
David: So look, your most traditional model is you become the franchisee, right? And you kind of spend some time in the store, you have a manager operating it, you manage the manager and the employees, and you kind of oversee it.
Your typical franchisee can spend anywhere from 10 to 20 hours a week in the store doing payroll, doing delivery, doing things of that nature. We also have individuals that, for different reasons, like the returns, like the attractiveness of our model but don’t have the time and effort.
And so we do have a model in which we have an operating entity that manages all of our company stores and they would in essence be hired by you as a franchisee to take over everything from the opening of the store, to the hiring, to the operating of the store and then basically reporting back to you on the financials. That structure requires a different bit of a profit split.
So to give you a more accurate, or more details, it would be 70%, going to the franchisee to yourself or to your investor and 30% to us until you make your money back. Once you make your money back then it would be a 60/40 split to you.
And so that is basically an option that many people consider because they either don’t have the time or the effort, but, you know, they really like the model of the ice cream, they like the returns.
Patrick: I could see some of our visa franchise clients, I know some are in the process of exploring Chill-N Nitrogen Ice Cream, you know, having an interest in that where they might be moving countries, more focused on having their kids adjust to school where they want that second hand really, you know, running the day-to-day while they’re more on the strategy and finance side.
David: Absolutely. We actually have a visa candidate right now getting ready to open next year, they’re in San Antonio, Texas. Ironically enough, this individual is actually opening it for his daughter who just turned 18, 19 years old, and unfortunately is no longer able to kind of fall under his protection or visa protection, and so she’s actually gonna be the franchisee.
He’s opening it for her and she’s excited. I mean, she’s come down to visit our stores, we’re gonna do the training. So there’s a lot of different ways that we can work with a family to kind of make this happen.
Patrick: All right, David, well this has been, you know, I always learn when we chat. Are there any, you know, last penny thoughts you’d like to leave for our listeners?
David: Yeah, look, I think, I’d be, you know, I’d be foolish not to kind of get into a little bit more of the financial peace just to give you more color, you know? And so I wanted to just kind of tell you that the average profit on our store is somewhere between 18% and 22%, so you can expect about 20% on an average sales of about $520,000 to a high $540,000, that’s average.
From that $520,000 to $540,000 in sales, you’re paying us 6% in royalty, that’s how we make our money. But even with that royalty amount, you should expect to probably make about 18% to 22%, which probably brings you to about a three-year payback. So we’re trying to shoot from between a three to four-year payback on your money.
Patrick: That’s solid. And I’m sure there’s some major tax benefits too for, you know, someone purchasing new equipment and appreciating that.
David: That’s right.
Patrick: So for high-income earners, I can imagine a lot of benefits and secondary benefits.
David: But we’re here to help with all of your followers and we speak Spanish as well, fluent Spanish, and we’re right down here in Miami, so we have some new stores that just opened so they could always tour the stores, or we can do virtual tours. We’ve done virtual discovery days for people, so those that can’t come visit.
Patrick: With the 6%, royalty. So, I mean, are they getting that back in terms of discounts with nitrogen and some of the supplies? Like, do you negotiate supplies for…?
David: Yeah, that’s right. So we have a national distributor, we have all of those prices prearranged. I mean, we’re getting volume discounts and so you’re getting a lot of benefits there. So you only have to buy from one distributor, which is called Sysco, they deliver it to your store once a week.
We have our own website within their platform, we handle the construction, we handle the training. I mean, we really just want you to basically invest in the brand and try to make sure you hire the best employees possible to give your customer that best experience.
Patrick: But one last question from my end, which has come up in the past, where do you want to expand? I heard San Antonio, you mentioned Coconut Grove here in Miami, Florida. Where do you see expansion for Chill-N in 2021 and 2022?
David: Look, I think, our primary focus is really to fill in the gaps of where we already operate. So if I had a magic wand I’d basically the Tri-County area from Boca Raton down here to Miami, we have the ability to develop somewhere between 7 and 10 more stores.
Obviously, some investors are interested in other markets and in those situations we would work with them, but they have to have a little bit more of a commitment to open more than one store because for me to provide that level of support, hopefully, it’s someone who has the vision to at least open three stores over five years.
You know, they don’t have to open them in one year, but at least over five years, we hope that they can have the vision to open three stores if we meet the certain financial hurdles.
Patrick: Well said. And in terms of the Americans, you know, $300K for some is a lot of money for some people not so much, is there a financing option for Chill-N Nitrogen Ice Cream?
David: That’s right, there are financing options. We have some good finance partners. You can expect to come out of pocket, probably about 20%, 30% of that investment.
Patrick. It sounds okay.
David: The only thing I’ll tell you is that financing used to take two to four months pre-COVID, it sometimes takes now somewhere between three and six months to get financing.
Patrick: Yeah, I’ve seen that.
David: So what we like to tell people is the entire process from when you sign an agreement with us to the day you open can take about a year.
Patrick: Perfect, that makes sense.
David: And then the process, the interview process, the entire approval process can take anywhere from two to three months depending on, obviously, the applicant.
Patrick: Great. So you can move relatively fast on the upfront and then I’m sure finding the location, building out, that’s what takes most of the time?
David: We are extremely careful on finding the location. Location, location, location, right? So chances are I will say “no” many times before I finally say “yes” to a location.
Patrick: Perfect. Well, David, it was a pleasure to have you on today, I really appreciate it.
David: Thanks, Patrick.
Patrick: For the viewers, you know, if you liked this video, like it, share with your friends, subscribe to our YouTube channel. If you’re in the Miami area or, soon, San Antonio, definitely check out a Chill-N Nitrogen Ice Cream.
David: Okay, great. Looking forward to working with your team.
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