PJ’s Coffee Franchise Cost High For Payback Period (2024)
PJ’s Coffee is a retail coffeehouse chain in the south. It was founded by Phyllis Jordan (and, thus, PJ) in 1978. Since 2004, they have been competing with Starbucks in the local areas and aim to go countrywide. They had 121 franchised and 11 affiliate-owned locations as of 2021. Want to know the PJ’s Coffee franchise cost, owner salary and profit? Scroll down to learn more!
How is PJ's Coffee 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 are employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6million more jobs by 2027.
The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3X for single unit coffee shops.
PJ’s competes in the Food and Beverage industry with brands like Aroma Espresso Bar, Illy, Starbucks, etc.
How Much is a PJ's Coffee Franchise?
The initial PJ’s Coffee Franchise Fee is $10,000 – $35,000 depending on the type of location. You have to pay this upfront fee when opening a PJ’s Coffee franchise.
PJ's Coffee Franchise Cost
The estimated total investment necessary to begin the operation of a PJ’s Coffee Franchise ranges from $406,000 to $1,024,000. The following costs are part of the upfront costs included in the initial investment for a PJ’s Coffee. 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 PJ’s Coffee franchise in 2022.
Your Initial Investment Traditional Model
| Type of Expenditure | Low | High | To Whom Payment is to be Made |
|---|---|---|---|
| Initial Franchise Fee | $10,000 | $35,000 | Franchisor |
| Real Estate Lease for Premises | $2,500 | $12,500 | Landlord |
| Furniture, Fixtures, and Equipment | $130,000 | $165,000 | Approved Suppliers |
| Opening advertising | $10,000 | $10,000 | Advertising |
| Training expenses | $0 | $0 | Franchisor |
| Travel and living expenses while training | $3,500 | $5,000 | Airlines, Hotels and Restaurants |
| Insurance | $5,000 | $9,500 | Agent/Company of Franchisee’s Choice |
| Other prepaid expenses, such as deposits, licenses and various permits | $2,000 | $6,500 | Suppliers and Government Agencies |
| Opening inventory | $10,000 | $14,000 | Franchisor and Suppliers |
| Signage | $7,000 | $18,000 | Approved Suppliers |
| Leasehold improvements (not including the purchase of land) | $175,000 | $675,000 | Approved General Contractor |
| Small wares | $9,000 | $12,000 | Approved Suppliers |
| POS System & Back-office Computer System | $2,500 | $5,500 | Approved Suppliers |
| Legal, accounting & organizational costs | $2,500 | $5,000 | Government, Attorneys, Accountants |
| Additional funds | $30,000 | $30,000 | Suppliers and Employees |
| Construction Drawings | $7,000 | $21,000 | Franchisor and/or Approved Suppliers |
| TOTAL | $406,000 | $1,024,000 |
This is definitely a higher cost than some competing franchises in the coffee business.
PJ's Coffee Franchise Requirements
PJ’s requires a minimum of $150K in liquid capital and a net worth minimum of $500K for a single unit. Creditworthiness, favorable debt to income ratio and secondary sources of income are also considered when determining eligibility.
Owning a PJ's Coffee Franchise Requires Ongoing Fees
Royalty: 5% of net sales
Marketing Fee: 2% of net sales
Initial Marketing Fee: $10,000
These fees are about 1% less than the industry standard.
How much do PJ's Coffee franchise owners make?
| Average | Median | Low | High | |
|---|---|---|---|---|
| Gross Sales | $868,356 | $808,248 | $695,695 | $1,051,422 |
| Gross Profit | $495,822 | $470,737 | $399,762 | $594,483 |
| EBITDA | $127,497 | $122,921 | $54,258 | $200,138 |
2021 PJ’s Coffee Median Franchise Sales: $808,248
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| $715,000 | 10% | $80,824 | 11.25 years |
| $715,000 | 15% | $121,237 | 8.5 years |
| $715,000 | 20% | $161,649 | 7 years |
Based on the median sales provided by PJ’s Coffee franchise locations, at an average of a 15% profit margin it will take around 8.5 years to recoup your investment. This is longer than 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 coffee shops; the extent of market penetration and brand awareness that PJ’s stores have attained in your market. Also, the quality of management and service at your Franchised Store are factors.
Is the PJ's Coffee Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for PJ’s Coffee 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 – 0.44
When you go to sell a PJ’s Coffee franchise based on the median multiple of .44 and net sales in 2021 of $808,284, it will sell for $355,629. This is significantly lower than the midpoint investment of $715,000.
The more franchises you own, the more earning potential you will have as private equity firms become interested in your business instead of individual owner-operators.
PJ's Coffee (Franchisor) Income Statement Key Insights:
New Orleans Brew, L.L.C.
Statements of Income
For the fiscal years ended December 26, 2021 and December 27,2020
Statements of Income
For the fiscal years ended December 26, 2021 and December 27,2020
| 2021 | 2020 | |
|---|---|---|
| Revenues | ||
| Royalties and other related fees | $2,670,630 | $2,071,755 |
| Franchise fees | 1,636,532 | 945,239 |
| Vendor incentives | 41,099 | 14,516 |
| 4,348,261 | 3,031,510 | |
| Expenses | ||
| General administrative | 794,513 | 631,207 |
| Payroll and payroll taxes | 2,215,157 | 1,518,562 |
| Selling and marketing | 1,185,651 | 804,970 |
| Depreciation and amortization | 7,653 | 9,885 |
| 4,202,974 | 2,964,624 | |
| Income from operations | 145,287 | 66,886 |
| Other income (expense) | ||
| Other income | 345,611 | 326,051 |
| Other expense | (14,645) | – |
| Interest expense | – | – |
| 330,966 | 326,051 | |
| Net income | $476,253 | $392,937 |
PJ’s Coffee is a very profitable business for the franchisor with retained earnings of $476,253 in 2021. Compared to $392,937 million in 2020, they saw an increase of 21%. This is a good indication of growth as a company overall.
How many PJ's Coffee 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 | 81 | 89 | +8 |
| 2020 | 89 | 104 | +15 | |
| 2021 | 104 | 121 | +16 | |
| Company-Owned | 2019 | 10 | 10 | 0 |
| 2020 | 10 | 10 | 0 | |
| 2021 | 10 | 11 | +1 | |
| Total Outlets | 2019 | 91 | 99 | +8 |
| 2020 | 99 | 114 | +15 | |
| 2021 | 114 | 131 | +17 |
Over the last three years, the company has been expanding. Over the three year period between 2019 and 2021, they opened 39 new locations, resulting in an average of 13 locations per year. This is generally a good sign as the company is expanding.
Conclusion
PJ’s Coffee presents itself as an up-and-coming player in the industry, planning to take on Starbucks. It is offering a chance to be a part of an industry that has been long present and PJ’s growth seems to be accelerating.
While this may be the business for you, make sure to also check out other businesses offered on Vetted Biz and in the Food and Beverage Industry.
