Is a Moe’s Franchise a good alternative to Chipotle? (2024)
Moe’s Southwest Grill, founded in Atlanta, Georgia in December 2000 by Raving Brands originated as an acronym for Musicians, Outlaws, and Entertainers(Moe’s). It is a part of the Focus Brands portfolio of brands along with Schlotzsky’s, Carvel, Cinnabon, McAlister’s Deli, Jamba, and Auntie Anne’s brands. The food offerings of Moe’s include burritos, tacos, quesadillas, nachos, salads, stacks, burrito bowls, and house-made seasonal salsas. The menu offers add-on ingredients for customization in various offerings on the menu. chips and salsa are offered with each order, on the side.
How is Moe’s Franchise Positioned in the Food & Beverage Industry?
The food industry has a significant share within regional economies and the U.S. economy. It employs human resources prominently and is a stable industry providing significant employment and labor income with around 13% of all U.S. manufacturing employment. The industry responds fast to the needs of the customers and has made significant innovations to satisfy the taste buds of the customers. The American consumer market figures over 320 million American consumers and has 5% of gross domestic product (GDP), 10% of total U.S. employment, and 10% of U.S. consumers’ disposable personal income (DPI). The sales of this market clock at around $1.4 trillion and around 10% of this figure is generated by the food and beverage industry alone. With the fast delivery systems in place and drone technology being initiated to deliver food the food and beverage industry shows signs of expansion.
The industry royalty is around 5.3%, marketing expenses are around 2.25%, the stability of units is expected to be over 75%, the growth rate of the industry is more than 15% and the average investment to establish a new unit is $466K.
Moe’s competes in the Global food market against big brand companies such as Chiptole which has an extensive presence in the whole of the USA. The penetration of Chipotle is higher than that of Moe’s but Moe’s fares better in terms of freshly cooked offerings and an expansive menu.
How Much is a Moe’s Franchise?
The initial Moe’s Franchise Fee is $30,500. You have to pay this upfront fee when opening a Moe’s franchise.
Moe’s Franchise Cost
The estimated total investment necessary to begin the operation of a Moe’s Franchise ranges from $566,300 to $ 1,585,610. The following costs are part of the upfront costs included in the initial investment for a Moe’s. 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 Moe’s franchise in 2022.
Estimated Initial Investment
| Type of Expenditure | Amount – Low | Amount – High | To Whom Payment is to be Made |
|---|---|---|---|
| Initial Franchise Fee | $30,500 | $30,500 | Us |
| Construction and Build Out Costs | $275,000 | $935,000 | Contractors |
| Permitting | $1,700 | $2,500 | Government agencies |
| Equipment Package | $79,000 | $127,000 | Vendors |
| Millwork | $35,000 | $44,000 | Vendors |
| Furniture | $24,500 | $35,000 | Vendors |
| Menu Board, Graphics and Interior Signage | $2,600 | $12,000 | Vendors |
| Exterior Signage | $12,000 | $73,200 | Vendors |
| Computer System | $12,000 | $47,000 | Vendors |
| Smallwares | $12,500 | $19,000 | Vendors |
| TV/Music | $1,000 | $3,600 | Vendors |
| Architect/Engineer | $11,500 | $32,000 | Architect |
| Rent | $4,500 | $20,000 | Lessors |
| Grand Opening Marketing | $5,000 | $25,000 | Vendors |
| Legal and Accounting Fees | $3,500 | $50,000 | Lawyers and accountants |
| Insurance | $7,000 | $9,000 | Insurance companies |
| Misc. Opening Costs/Office Supplies | $2,500 | $5,000 | Vendors, us |
| Security Deposits | $1,500 | $8,000 | Utility, companies, lessors |
| Training Fees | $0 | $5,810 | Us |
| Travel and Living Expenses during Training | $10,000 | $40,000 | Airlines, hotels and restaurants |
| Opening Inventory | $10,000 | $12,000 | Vendors |
| Additional Fund – 3 Months | $25,000 | $50,000 | Us, employees, vendors, etc. |
| Total Initial | $566,300 | $1,585,610 |
Total initial investment of Moe’s franchise is $4,075,955 which compares to be significantly higher in comparison to the industry’s average investment of $466,000.
Moe’s Franchise Requirements
Moe’s franchise requires that there is a multiunit operating experience with the ability to open 3+ locations. The franchisee has a people development orientation and a strong community connection for grassroots marketing in addition to a fun-loving and energetic personality.
Owning a Moe’s Franchise Requires Ongoing Fees
Royalty: 5 % of net sales
Marketing Fee: 2.25% of net sales
The royalty fee is 5% of net sales and the advertising contribution currently is 2% of net sales which is expected to increase to 4%. The advertising cooperative contribution will be an amount as set by the advertising cooperative.
How much do Moe’s franchise owners make?
Average Net Sales By Quartile For Traditional Franchises For Fiscal Year 2021
| Quartiles | Average Net Sales | Number and Porcentage of Restaurants Attaining or Exceeding Average Net Sales | Median Net Sales | Lowest Net Sales | Highest Net Sales |
|---|---|---|---|---|---|
| Top Quartile | $1,573,535 | 45/121 (37%) | $1,497,392 | $1,284,349 | $2,727,632 |
| 2nd Quartile | $1,139,685 | 60/120 (50%) | $1,139,789 | $1,015,975 | $1,283,875 |
| 3rd Quartile | $911,233 | 55/120 (46%) | $904,254 | $809,513 | $1,015,143 |
| Bottom Quartile | $667,010 | 66/121 (55%) | $680,200 | $346,152 | $808,673 |
| Total | $1,073,062 | 212/482 (44%) | $1,015,559 | $346,152 | $2,727,632 |
(2021) Moe’s Median Franchise Sales: $1,015,559
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| $1,075,955 | 10% | $161,393 | 9.25 years |
| $1,075,955 | 15% | $215,191 | 7.5 years |
| $1,075,955 | 20% | $268,988 | 6.5 years |
Based on the median sales provided by Moe’s franchise locations, at an average of a 20% profit margin it will take around 7.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 20% 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 Global food stores; the extent of market penetration and brand awareness that Moe’s stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Moe’s Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Moe’s 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 $1 Million Net Sales
- Estimated Selling Price = Net Sales – 0.31
$1 Million – $5 Million Net Sales
- Estimated Selling Price = Net Sales – 0.34
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales – 0.89
When you go to sell a Moe’s franchise based on the median multiple of 0.34 and net sales in 2021 of $1,073,062, it would sell for $364,841. This is significantly lower than the midpoint investment of $1,075,955.
However, as an owner of multiple Moe’s franchises, you do have the ability to make a profit. Owners in the Food & Beverage Industry with over $5 million in sales have a median multiple of .89. So, if you had 10 Moe’s franchises this would be ~$10,730,620 in sales. This would sell for $9,550,251. This is an amazing profit on the initial estimated investment of $5,379,775.
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.
Existing Moe’s Franchises on sale on BizBuySell reaffirm our calculations.
The EBITDA multiplier for Moe’s locations is between 2x and 3x.
Moe’s (Franchisor) Income Statement Key Insights:
Consolidated statements of operations (In thousands)
| For the fiscal years ended: | December 26, 2021 | December 27, 2020 | December 29, 2019 |
|---|---|---|---|
| Revenues: | |||
| Franchise revenues | $221,276 | $166,977 | $210,226 |
| Total revenues | 221,276 | 166,977 | 210,226 |
| Fees and expenses: | |||
| Management fee to FBLLC | 41,654 | 42,353 | 44,098 |
| Selling, general and administrative expenses | 404 | 1,793 | 462 |
| Depreciation and amortization expense | 3,030 | 3,435 | 3,929 |
| Total fees and expenses | 45,088 | 47,581 | 48,489 |
| Operating income | 176,188 | 119,396 | 161,737 |
| Income before income tax expense | 176,188 | 119,396 | 161,737 |
| Income tax expense | 1,565 | 1,188 | 1,637 |
| Net income | $174,623 | $118,208 | $160,100 |
Moe’s is a very profitable business for the franchisor with retained earnings of $174.62 million in 2021. Compared to $160.10 million in 2019, they saw an increase of 9.06% from 2019 to 2021. This is a good indication of high growth as a company overall.
How many Moe’s 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 | 714 | 719 | +5 |
| 2020 | 719 | 679 | -40 | |
| 2021 | 679 | 658 | -21 | |
| Company-Owned | 2019 | 5 | 3 | -2 |
| 2020 | 3 | 2 | -1 | |
| 2021 | 2 | 1 | -1 | |
| Total Outlets | 2019 | 719 | 722 | +3 |
| 2020 | 722 | 681 | -41 | |
| 2021 | 681 | 659 | -22 |
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 19 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
Moe’s offers people the opportunity to be a part of a business that has a good return if you own a big chain. Depending on your location, it might be difficult to run five restaurants offering global cuisine, however. Also, the brand penetration of Chipotle and the recognition of the company will affect Moe’s sales.
We recommend talking to 3 – 5 Moe’s franchisees to learn more about the business.
While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food & Beverage Industry.
