Panda Express Franchise: Cost, Profits, and More
What is the Panda Express 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?
Panda Express is a fast food franchise restaurant chain that primarily serves American Chinese food. Their menu consists of items that are inspired by traditional Chinese cuisine, such as orange chicken, Kung Pao chicken, teriyaki chicken, and Beijing Beef. The sister company of Panda Express is Panda Inn, which is a more upscale, table service restaurant that offers similar meal items. The headquarters of the Panda Express franchise is located in Rosemead, California.
According to their FDD, Panda Express anticipates that most of their franchises will operate in “captive venues” under licensing agreements, such as airports, hospitals, casinos, and other similar facilities.
Background of Panda Express
The Panda Express concept was founded in the 1970s by the Cherng family — Chef Ming Tsai Chern and his children Andrew and Peggy Cherng. It originally started off as Panda Inn, a more upscale, sit-down restaurant. Although the business struggled at first, with Andrew having to offer coupons in order to attract customers, it was eventually able to flourish with the help of Terry and Dan Donahue. With this connection, they were able to expand their restaurant concept into food courts, creating the now-known fast food restaurant Panda Express. In the beginning, Panda Express was only found in food courts, but eventually they expanded into brick and mortar concepts. Now, less than 2% of existing Panda Express franchises exist in food court areas.
History of Panda Express
According to the Panda Express website, in 1983, the first Panda Express unit was founded in the Glendale Galleria in Glendale, California.
In 1987, the Orange Chicken entree was invented by Chef Andy Kao for Panda Express. Panda Express credits themselves for pioneering this popular American-Chinese dish, and variations of this are served in American-Chinese restaurants.
In 1997, the first Panda Express drive-thru restaurant opened in Hesperia, California.
In 1998, Panda Express opened their first baseball stadium restaurant in Angel Stadium.
In 2001, Panda Express opened their first restaurant in a theme park location at Six Flags in Valencia, California.
In 2007, Panda Express opened their 1,000th location in Pasadena, California.
In 2011, the first international Panda Express restaurant opened in Mexico City. Now, they have locations in Guam, South Korea, Puerto Rico, Canada, and Dubai.
How Much is a Panda Express Franchise?
Panda Express Franchise Fee
$25,000
The initial license fee for a Panda Express 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 is $25,000. This is the upfront fee that must be paid when opening a Panda Express franchise.
Panda Express Franchise Cost
The estimated total investment necessary to begin operation of a Panda Express franchise ranges from $377,100 – $1,884,000.
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
| Lease of Premises (Initial 3 months rent) | $10,000 – $425,000 |
| Leasehold Improvements | $80,000 – $700,000 |
| Furniture, Fixtures, Equipment, and Supplies | $90,000 – $310,000 |
| Initial InventoryThe value of the total finished and unfinished goods and materials the business holds for future sale…. | $2,200 – $10,000 |
| Computer Hardware and Software | $14,000 – $21,000 |
| Non-resettable cash register | $6,000 – $8,000 |
| Insurance | $30,000 – $75,000 |
| Expenses incurred during initial training | $13,000 – $29,000 |
| Architectural and design fees | $17,000 – $50,000 |
| Construction Supervision | $17,000 – $70,000 |
| SalesThe total amount in dollars made in the business before expenses are deducted. See also Gross Revenue…. Tax Deposits | $4,500 – $10,000 |
| Telephone, Fax, and Other Communication Related Fees | $500 – $1,000 |
| Licenses and Permits | $1,500 – $30,000 |
| Misc. Funds | $0 – $10,000 |
| Additional Funds (3 months) | $60,000 – $110,000 |
Overall, Panda Express has a wide range of additional costs and fees. Their additional costs for the estimated total investment is on the higher end, especially in terms of rent, leasehold improvements, and insurance.
Ongoing Costs and Fees
The royalty fee for Panda Express is 8% of gross sales or the minimum amount of $4000. The franchisee must pay the higher of the two.
How Much Do Franchise Owners Make?
Panda Express Franchise Sales Figures
The financial performance representations in Panda Express’s FDD were taken from currently operating licensed franchisees in the year 2020. Their financial performance representations are categorized by type of licensed location: in this case the airport, casino, hospital, military, and university, as well as the total numbers.
Below is a chart that showcases the most important of the financial information given by Panda Express — their average gross salesThe total amount in dollars made in the business before expenses are deducted. See also Gross Revenue…. by location, median gross sales by location, minimum gross sales by location, and maximum gross sales by location.
Financial Performance by Location
| Airport | Hospital | Military | University | Casino | Total | |
| Total Gross SalesThe total amount in dollars made in the business before expenses are deducted. See also Gross Revenue…. | $19,059,939 | $1,309,846 | $39,026,818 | $28,408,154 | $3,527,500 | $91,332,258 |
| Average Gross Sales | $1,191,246 | $436,615 | $1,027,022 | $424,002 | $881,875 | $713,553 |
| Minimum Gross Sales | $184,872 | $224,732 | $224,732 | $123,104 | $420,343 | $123,104 |
| Median Gross Sales | $995,281 | $436,391 | $901,747 | $373,496 | $879,890 | $528,794 |
| Maximum Gross Sales | $3,453,579 | $620,658 | $2,560,583 | $1,162,498 | $1,347,439 | $3,453,579 |
In general, it seems that Panda Express units do the best financially in airport locations, with them having the highest maximum gross salesThe total amount in dollars made in the business before expenses are deducted. See also Gross Revenue…. at $3,453,579; highest average gross sales at $1,191,246, and highest median gross sales at $995,281. However, the military locations outperform airport locations for total gross sales at $39,026,818 and the casino locations outperform for minimum gross sales at $420,343.
It is important to note that these financial representations only showcase the figures for gross sales, there is no information on the net profitAlso known as net income or net margin, the net profit is the net income on an income statement. It is the revenue minus the cost of goods sold, expenses, interest, and taxes.Net Profit = Revenue – Cost of Goods Sold – Expenses – Interest – Taxes… of the average franchisee. In fact, given the high initial investmentThe amount of funds necessary to begin operations of a business or franchise including the first three months of operation…. for a Panda Express 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, one possible implication is that there might be a high operating cost, which could eat into even the high gross sales of Panda Express.
Panda Express 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…
Panda Express Income Statement
| 2020 | 2019 | |
|---|---|---|
| Revenues | ||
| Royalty Income | $ 8,436,498 | $ 13,570,336 |
| License fees | $ 430,635 | $ 1,583,865 |
| Initial fees | $ 519,800 | $ 548,679 |
| Rental income | $ 145,900 | $ 145,900 |
| Total Revenues | $ 9,532,833 | $ 15,848,780 |
| Expenses | ||
| DepreciationA reduction in the value of an asset over time, due to wear and tear…. | $ 880,596 | $ 917,504 |
| Professional Services | $ 255,787 | $ 554,673 |
| Salaries and Benefits | $ 54,045 | $ 147,338 |
| Miscellaneous | $ 40,618 | $ 100,636 |
| Insurance | $ 36,839 | —- |
| Property Tax | $ 153,180 | $ 199,700 |
| Total Expenses | $1,421,065 | $1,919,851 |
| Income before foreign tax provision | $ 8,111,768 | $ 13,928,929 |
| Foreign tax provision | $ (162,830) | $(228,828) |
| Net income | $ 7,948,938 | $ 13,700,101 |
Panda Express Franchisor Income Statement Key Insights
Overall, Panda Express is a profitableWhen the earnings in a given period of time is more than the expenses in a business…. business, making almost $9,500,000 in 2020. The majority of their revenue comes from royalty income, and this could be due to the fact that Panda Express charges a relatively high royalty fee at 8%, compared to the 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 average of 6%. Their expenses are also relatively small compared to their revenue, meaning that they are able to make a significant net profitAlso known as net income or net margin, the net profit is the net income on an income statement. It is the revenue minus the cost of goods sold, expenses, interest, and taxes.Net Profit = Revenue – Cost of Goods Sold – Expenses – Interest – Taxes… according to their income statement. In fact, their net income in 2020 was almost $8,000,000.
How does this compare to other franchises in the food and beverage industry? Despite the fact that Panda Express is a major name in the industry, its revenues are relatively small compared to other franchises. However, it is important to keep in mind that the financial information revealed in their income statement is fairly limited, so the following comparisons are based on revenues from royaltiesFees paid by a franchisee to their franchisor in order to operate a franchise location. They are usually on a weekly or monthly basis…. More and license fees rather than restaurant salesThe total amount in dollars made in the business before expenses are deducted. See also Gross Revenue…..
Papa John’s made a little over $7,000,000 in royalties and license fees, while the Crumbl Cookies franchise made a little over $2,000,000 in royalties. However, Taco Bell made over $260,000,000 in franchise and license fees, far more than any of the three aforementioned franchises. However, this could be because Taco Bell has more franchise units on average than Panda Express, and they have a higher royalty fee at 10%.
Compared to other franchises, Panda Express lacks transparency in regards to their financial statements as they give no indication of the revenue they make from their company-owned units.
Panda Express Franchisor Cash FlowThe net profit before taxes plus payments to the owner(s), interest, and depreciation of assets…. Statement
Panda Express Cash Flow Statement
| 2020 | 2019 | |
|---|---|---|
| Cash Flows from Operating Activities | ||
| Net Income | $7,948,938 | $13,700,101 |
| Adjustments to Reconcile Net Income to Net Cash | ||
| Provided by (used in) operating activities | ||
| DepreciationA reduction in the value of an asset over time, due to wear and tear…. | $ 880,596 | $ 917,504 |
| Effects of Changes in Operating Assets and Liabilities | ||
| Accounts Receivable | $1,090,849 | $(246,377) |
| Due from Affiliate | $ (9,179,635) | $ (14,869,105) |
| Prepaid Taxes | $ 337,034 | $ (337,795) |
| Deferred revenue | $ (267,799) | $ 309,824 |
| Net cash provided by (used in) operating activities | $ 809,983 | $ (525,848) |
| Cash Flows from Investing Activities | ||
| Purchases of Property and Equipment | $(674) | —- |
| Cash used in investing activities | $(674) | —- |
| Net change in cash and cash equivalents | $ 809,309 | $ (525,848) |
| Cash and cash equivalents – beginning of period | $ 1,545,759 | $2,071,607 |
| Cash and cash equivalents – end of period | $ 2,355,068 | $ 1,545,759 |
| Supplemental cash flow information | ||
| Foreign income taxes paid | $ 162,830 | $ 228,828 |
| Noncash investing and financing activities | ||
| Property and equipment financed with affiliate | —- | $507,395 |
Cash FlowThe net profit before taxes plus payments to the owner(s), interest, and depreciation of assets…. Statement Key Insights
Overall, Panda Express is able to retain about 25% of their net profits in liquid assets. In 2020, their net income was almost $8,000,0000, but their cash and cash equivalents was $2,355,068 at the end of the fiscal period. This is probably due to the fact that, according to their cash flow statement, there is almost $10,000,000 due to Panda Express from affiliates, meaning that while they own those assets they are being held in another account.
How many Panda Express units have opened/closed?
Beg. of 2018
At the beginning of the year, Panda Express had 108 franchised units.
At the beginning of the year, Panda Express had 1,897 company-owned units.
At the beginning of the year, Panda Express had 2,005 total units.
End of 2018
At the end of the year, Panda Express had 125 franchised units.
At the end of the year, Panda Express had 1,979 company-owned units.
At the end of the year, Panda Express had 2,106 total units.
Beg. of 2019
At the beginning of the year, Panda Express had 125 franchised units.
At the beginning of the year, Panda Express had 1,979 company-owned units.
At the beginning of the year, Panda Express had 2,106 total units.
End of 2019
At the end of the year, Panda Express had 138 franchised units.
At the end of the year, Panda Express had 2,046 company-owned units.
At the end of the year, Panda Express had 2,184 total units.
Beg. of 2020
At the beginning of the year, Panda Express had 138 franchised units.
At the beginning of the year, Panda Express had 2,046 company-owned units.
At the beginning of the year, Panda express had 2,184 total units.
End of 2020
At the end of the year, Panda Express had 140 franchised units.
At the end of the year, Panda Express had 2,099 company-owned units.
At the end of the year, Panda Express had 2,239 total units.
Net Change in 2020
The net change of Panda Express franchised units was +2 units.
The net change of Panda Express corporate unitsBusinesses in different locations owned by a larger parent company… was +53 units.
The total net change of Panda Express units was +55 units.
Overall, the number of Panda Express units has been growing over the past three years, but at a decreasing rate. For example, in 2018 the net change of franchised units was +17, but in 2020 only 2 units were added. Furthermore, for the amount of Panda Express units existing in the system, the growth rate is relatively small, but this could be due to the COVID pandemic in 2020. At the same time, the number of Panda Express company-owned units is growing at a much faster rate than the franchised units, and has been doing so for the past three years. This is probably due to the fact that there exist many more Panda Express corporate units than franchised units, which could be a sign that Panda Express invests most of its energy and resources into internal development instead of to their licensed/franchised system.
