Is Rusty Taco Franchise an Upcoming Player? (2022)

Written by: Parth Parth
Last Updated by Marina Longo: August 5, 2022
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This article is based on its 2022 FDD.

Rusty Taco is an America-based chain of restaurants that serves Tacos, burritos, nachos, and desserts. The menu has been crafted to suit the taste buds of different customers like kids and regulars. The fast-food chain founded by Rusty Fenton and his wife, Denise, started in Atlanta, GA in 2010. Rusty Taco is a subsidiary of Inspire Brands. There are 37 restaurants in 2022 dotting 9 states of the USA.

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How is Rusty Taco 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 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x for a single restaurant. Multiples can go up to 7x for 5+ restaurants.

How Much is a Rusty Taco Franchise?

The initial Rusty Taco Franchise Fee is $25,000. You have to pay this upfront fee when opening a Rusty Taco franchise.

Rusty Taco Franchise Cost

The estimated total investment necessary to begin the operation of a Rusty Taco Franchise ranges from $531,900 to $897,450. The following costs are part of the upfront costs included in the initial investment for a Rusty Taco. 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 Rusty Taco franchise in 2022.

Initial Investment

Type of ExpenditureAmountTo Whom Payment is to be Made
LowHigh
Development Fee$37,500$137,500Us
Site Selection Costs$1,000$3,000Vendors
Professional Services$1,000$5,000Accountants, Lawyers, Architect, etc.
TOTAL$39,500$145,500
Initial Franchise Fee$25,000Us
First Month’s Rent and Security Deposit$3,000$7,000Landlord
Deposits$6,000$10,000Utility Companies
Construction, Remodeling and Leasehold Improvements$253,000$450,000Landlord or Contractor
Permits and Licenses$3,000$6,950Governing Agencies
Architect Fee$15,000$25,000Designated Architect
Restaurant Design Consulting Services$500$1,500Suppliers
Furniture, Fixtures, Equipment, and Signage$163,000$210,000Approved Suppliers
Initial & Opening Training Costs$0$12,000Employees and Suppliers
Computer Hardware and Software$15,000$30,000Suppliers
Initial Inventory/Supplies$7,400$10,000Suppliers
Professional Services$5,000$15,000Accountants, Lawyers, Us, Architect, etc.
Initial Advertising and Marketing Expenses$10,000$15,000Suppliers
Insurance$6,000$30,000Insurance Broker
Additional Funds (3 months)$20,000$50,000Third Parties and Us
TOTAL$531,900$897,450

The fee of establishing a food and beverage franchisee unit is $466,000 whereas the lower limit of establishing a Rusty Taco is over $530,000.

rusty taco

Rusty Taco Franchise Requirements

A franchise participant should have a minimum of $500,000 in liquid capital and a net worth of more than $1,000,000.  It is a must for the operating principal to have a 10% equity interest in the business entity and should successfully complete a training program from the organization. In case the franchisee is a business entity then each owner is required to sign a guarantee and personal undertaking. Restaurants opening in 2023 are being provided with a 0% royalty fee and a discounted royalty for 36 months. A gradual increase in the royalty is exhibited for 2024.

Owning a Rusty Taco Franchise Requires Ongoing Fees

Royalty: 5% of gross sales

The food and beverage industry stands with a 5.3% royalty fee, and 2.3% marketing fee. The fee of Rusty Taco hence stands lower than the industry average.

How much do Rusty Taco franchise owners make?

2021 Restaurants – Annual AUVs for 2021 Fiscal Year

# of Restaurants Average Unit Volume #/% Exceeding Average Highest AUV Lowest AUV Median AUV
2021 Restaurants 28 $1,099,722 12/43% $1,816,366 $495,545 $1,031,060
Top Third 9 $1,561,858 4/44% $1,816,366 $1,276,469 $1,559,350
Middle Third 10 $1,060,380 5/50% $1,274,104 $963,914 $1,031,060
Bottom Third 9 $681,299 4/44% $881,478 $495,545 $644,345
CTA-2

2021 Rusty Taco Median Franchise Sales: $1,031,060

Initial Investment (midpoint) %Profit margin of average franchise sales Estimated profits Time to recoup investment
$714,675 10% $154,659 7 years
15% $206,212 6 years
20% $257,765 5.25 years

Based on the median sales provided by Rusty Taco’s franchise locations, at an average of a 15% profit margin it will take around 6 years to recoup your investment. This is in the standard range of investment. 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 such stores; the extent of market penetration and brand awareness that Rusty Taco stores have attained in low with less than 40 stores offering their products. Also, the quality of management and service at  Franchised Stores are major factors.

Is the Rusty Taco Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Rusty Taco 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 Rusty Taco franchise based on the median multiple of 0.34 and net AUV in 2021 of $1,031,060, it would sell for $350,560. This is significantly lower than the midpoint investment of $714,675.

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.

Rusty Taco (Franchisor) Income Statement Key Insights:

The Closet Factory Franchise Corporation Statements Of Income (Loss)

 For the Year Ended December 31,
Revenues:
Company-owned restaurant sales$2,063,456
Franchise fees and royalty revenues87,460
Franchise contributions for advertising77,203
Other revenues14,304
Total revenues2,242,423
Costs and expenses:
Company-owned restaurant expenses1,762,730
Franchise advertising expenses82,759
Selling, general and administrative expenses222,324
Depreciation and amortization122,624
Impairment charges10,571
Total costs and expenses2,201,008
Other operating loss, net(2,251)
Operating income39,164
Interest expense1,948
Other income, net(4)
Income before income taxes37,220
Income tax benefit(6,087)
Net income43,307
Net income attributable to noncontrolling interest74
Net income attributable to Buffalo Wild Wings, Inc. and Subsidiaries$43,233

Rusty Taco is a very profitable business for the franchisor with retained earnings of $43,23 million in 2021. In the absence of the incomes of previous years, it is difficult to compare.

How many Rusty Taco 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 22 25 +3
2020 25 30 +5
2021 30 32 +2
Company-Owned 2019 9 9 0
2020 9 4 -5
2021 4 4 0
Total Outlets 2019 31 34 +3
2020 34 34 0
2021 34 36 +2

Over the last three years, the company had 22 franchise outlets at the start of 2019 which increased to 30 by the end of  2021, and 9 company-owned outlets which have been in decline. Both franchising units and company-operated stores have decreased. Over the last three years, franchises have closed at a rate at the start of the year which was reduced to 4 by the end of 2021. This indicates that the company is interested in moving towards franchise outlets rather than self-owned and operated outlets.

rusty taco

Conclusion

Rusty Taco offers people the opportunity to be a part of a business that has enormous scope in the American markets. There is a good customer base and people are interested in Mexican dishes. The products are not new. The chain has been present for quite some time which indicates that the products are accepted. There is immense scope for expansion as not many stores dot the geography. The franchisor also provides a lot of incentives to get started – a 0% introductory royalty.

There is stiff competition with chains like Chipotle and Qdoba having a well-penetrated market.

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.

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