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Jason’s Deli Franchises Are Closing Down (2023)
Written by: Parth Parth
Last Updated by
Facundo Bermudez: January 12, 2023
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This article is based on its 2022 FDD.
Jason’s Deli Franchise is a fast casual restaurant that offers a variety of delicatessen products, as well as sandwiches, soups, baked potatoes, pasta dishes, wraps, and a salad bar, as well as catering and delivery services.
It was founded in Beaumont, Texas on 30 November 1976 by Joe Tortorice Jr. Back in 2008, Jason’s Deli ranked #1 in annual sales in QSR Magazine’s Top Ten list of restaurant groups with under 300 locations.
It currently operates 248 restaurants, with the majority of locations being company-operated.
Table of Contents
How is Jason's Deli 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 1.6 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 Jason's Deli Franchise?
The initial Jason’s Deli Franchise Fee is $35,000. You have to pay this upfront fee when opening a Jason’s Deli franchise.
Jason's Deli Franchise Cost
The estimated total investment necessary to begin the operation of a Jason’s Deli Franchise ranges from $1,020,759 to $1,554,891. The following costs are part of the upfront costs included in the initial investment for Jason’s Deli. 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 Jason’s Deli franchise in 2022.
Estimated Initial Investment
| Type of expediture | Amount | To Whom Payment Is To Be Made |
|---|---|---|
| Initial Franchise Fee | $35,000.00 | Franchisor |
| Development Fee | $17,500 per additional Deli (See Note 1). At least two delis are required, bringing total development fees paid by franchisor to $35,000. | Franchisor |
| Travel and living expenses while training | $15,000.00 | Airlines, Hotels and Restaurants |
| Build out or remodeling of 4,500-5,000 sq. ft. premises | $496,900.00 to 0- $766,132.00 | Suppliers, Tradesman and Contractors |
| Equipment: *Fabricated Equipment Buyout Equipment; *Furniture; Small Wares Signage | $300,000.00 – $25,000.00 – $24,753.63 – $18,000.00 to $100,000.00 | Suppliers |
| Administrative and Miscellaneous: Pre-Opening Advertising Deposits (rent, utilities, and sales tax) | $5,000.00 to $20,000.00 | Suppliers and Landlords |
| Licenses Interim Interest Payments Pre-opening training personnel from existing Delis, if applicable | $10,000.00 – $70,000.00 to $125,000.00 | Governmental Entities, Suppliers Hotels, restaurants, and/or Travel Providers |
| Insurance | $4,500.00 to $15,000.00 | Insurance Company/ Agent |
| Online Ordering SetUp Costs and Monthly Hosting | $450.00 per store and $130 Monthly per store | Third Party Supplier Order Restaurant Revolution Technologies, Inc. |
| Point-Of-Sale System | $3,600 to $6,000 per store & $600 to $1200 monthly per store | Third Party Supplier – NCR |
| Customer Satisfaction/Feedback Software | $60.00/monthly Per store | Third Party Supplier |
| System Email | $150.00/per user account per year | Third Party Supplier Google |
| Initial Inventory | $32,925.82 | Suppliers or Franchisor |
| Additional Funds – 3 months | $20,000.00 to $35,000.00 | Vendors, Employees and other Third Parties |
| Total | $1,020,759.45 to $1,554.891.45 |
Owning a Jason's Deli Franchise Requires Ongoing Fees
How much do Jason's Deli franchise owners make?
Jason’s Deli does not disclose financials, however, Restaurant Business Online estimates annual sales of $516,000,000 across all units. This amounts to an average unit volume of $2,080,645.
2022 Jason’s Deli Median Franchise Sales: $2,080,645
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $1,287,825 | 10% | $208,064 | 7.5 years |
| 15% | $312,096 | 5.5 years | |
| 20% | $416,129 | 4.5 years |
Based on the median sales provided by Jason’s Deli’s franchise locations, at an average of a 15% profit margin, it will take around 5.5 years to recoup your investment. This is the same time as 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 Jason's Deli stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Jason's Deli Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Jason’s Deli 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 Jason’s Deli franchise based on the median multiple of .55 and net sales in 2022 of $2,080,645, it would sell for $1,144,354. This is just slightly lower than the midpoint investment of $1,287,825.
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.
Jason’s Deli (Franchisor) Income Statement Key Insights:
| Years ended December 31, | ||
|---|---|---|
| 2021 | 2020 | |
| REVENUE: | ||
| Sales – delis | $341,495,238 | $272,173,485 |
| Sales – distribution centers | 76,874,473 | 50,759,622 |
| Franchise sales | 8,000 | 23,000 |
| Franchise royalties | 7,104,517 | 5,520,118 |
| Backhaul income | 4,008,935 | 3,119,308 |
| Total revenue | 429,491,163 | 331,595,533 |
| COST OF REVENUE | 166,252,053 | 126,996,909 |
| Gross profit | 263,239,110 | 204,598,624 |
| OPERATING EXPENSES, EXCLUDING OWNERS COMPENSATION | 233,403,383 | 213,701,627 |
| Operating income (loss) before owners compensation | 29,835,727 | (9,103,003) |
| OWNERS COMPENSATION | 1,401,125 | 838,019 |
| Income (loss) from operations | 28,434,602 | (9,941,022) |
| OTHER INCOME (EXPENSE): | ||
| Interest, net | (8,630,324) | (5,327,645) |
| Other income | 618,489 | 507,509 |
| Total other expense | (8,011,835) | (4,820,136) |
| STATE INCOME TAXES | 448,771 | 247,045 |
| Net income (loss) | $19,973,996 | $(15,008,203) |
Jason’s Deli is a very profitable business for the franchisor, with retained earnings of $19.97 million in 2021. Compared to a loss of 15$ million in 2020, this is a good indication of a good recovery from COVID as a company overall.
How many Jason’s Deli 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 | 105 | 97 | -8 |
| 2020 | 97 | 85 | -12 | |
| 2021 | 85 | 82 | -3 | |
| Company-Owned | 2019 | 174 | 186 | 12 |
| 2020 | 186 | 166 | -20 | |
| 2021 | 166 | 166 | 0 | |
| Total Outlets | 2019 | 279 | 283 | 4 |
| 2020 | 283 | 251 | -32 | |
| 2021 | 251 | 248 | -3 |
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 8 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.
Why are stores decreasing when the financials seem strong?
While Jason’s Deli looks good on the surface and has an amazing payback period and resale value, it is mired in a lot of litigation. There is a class action and five lawsuits disclosed in the FDD. These disputes are about overtime wages, and this mess of lawsuits might be why franchisees are not eager to sign up for a Jason’s Deli franchise. Additionally, Jason’s Deli’s website currently has no mentions of franchising. It might mean that they have temporarily stopped franchising.
Conclusion
Jason’s Deli offers people the opportunity to be a part of a business that has amazing returns, but with the decline in units and multiple lawsuits, you should talk to at least 3-5 other franchisees before considering this business.
While this may be the business for you, make sure also to check out other Deli Franchises offered on Vetted Biz and in the Food and Beverage Industry.
