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7 Brew Franchise – Drive-thru Coffee Concept and Short Payback Period (2022)

Written by: Qingyi (Shirley) Cao
Last Updated by Rocio Somoza: September 7, 2022
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The drive-thru coffee business has rapidly grown in recent years, especially during the COVID-19 pandemic when people preferred social distancing when enjoying a sip of coffee. As the market shifted away from the sit-and-drink-coffee-all-day model, 7 Brew was established in 2016 and has gradually expanded. Mostly based in Northwest Arkansas, 7 Brew Coffee is now accompanied by cash from Drink House Holdings, an investment partnership from Jimmy John’s founder Jimmy John Liautaud and Lone Star Steakhouse founder Jamie Coulter.

Although large coffee chains, such as Starbucks and Dunkin’, have already begun their journey of shifting gears toward a drive-thru business model mostly in the suburbs, the founders of 7 Brew believe that the industry still has white space for another competitor.

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How Is 7 Brew Positioned in the Food & Beverage Industry?

The food and beverage industry is a significant contributor to regional economies and to the U.S. economy. It is a stable industry in terms of employment and labor income due to the consistent demand for food. The food and beverage sector accounts for about 5% of gross domestic product (GDP), 10% of total U.S. employment, and 10% of U.S. consumers’ disposable personal income (DPI). It has total sales of $1.4 trillion, of which $164 billion in value-added is generated by the food and beverage industry alone.

Food and beverage franchises are often the first things people correlate with the franchise industry. Food & Beverage is certainly one of the most popular areas of franchising. Although food franchising is often associated with fast food, the industry also includes fast-casual, coffee, and pizza. 7 Brew franchisees have to compete with businesses that offer similar coffee and caffeine-related beverages. Some examples include Starbucks, Peet’s Coffee.

Of the food and beverage concepts we have reviewed, total investment amounts can start as low as $3,000 for smaller kiosk concepts all the way up to $6,732,615 for a full-service location.

7 Brew

What Is the 7 Brew Coffee Franchise Cost?

The total investment necessary to begin the operation of a traditional 7 Brew franchise ranges from $790,800 to $1,582,000, excluding real estate costs, while assuming a 2-store commitment. This includes $45,000 to $380,000 that must be paid to the franchisor. Additionally, the minimum development fee equals $45,000 and you must pay another $10,000 development fee for each additional traditional 7 Brew Store after opening the second one.

Once the operations begin, franchisees are expected to pay the company a royalty fee in relation to their weekly gross sales.

Weekly Gross SalesRoyalty Fee
Less than $20,0004.5%
Between $20,000 and $25,0005.5%
More than $25,0007%

Moreover, franchisees are required to pay an advertising fee maximum of 2%, but currently, it is charging 1% of the weekly gross sales. A maximum technology fee of 0.25% of the weekly gross sales is expected from the franchisor.

CTA-2

How Much Do 7 Brew Franchise Owners Make?

Only starting franchising in 2021, 7 Brew Coffee offers full financial disclosure of eight company-owned businesses that operate for a full year in 2021, which gives us a comprehensive peek into its business model for prospective franchisees. All of the recorded stores are located in Northwest Arkansas and have an average of approximately 480 square feet.

The average store gross sales are $2,394,112 in the fiscal year 2021, including stores that have operated for 25 to 59 months. Of the reported stores, 62.5% of them exceeded the average net sales margin of 98.84%

The average gross profit margin was 68.55% and the post-royalties & brand fund EBITDA, which subtracts expenses such as labor, operation, marketing, and rent, and royalty fees from gross profit, was 19.68%. 

Exhibit 1Fiscal Year 2021
 Measured Stores
Average Store Gross Sales$2,394,112
Median Store Gross Sales$2,506,612
High Store Gross Sales$3,193,657
Low Store Gross Sales$1,815,591
7 Brew
Exhibit 2Periods 1 through 13 of 2021
 Measured Stores
Gross Sales100%
(-) Total Discounts1.16%
  
Net Sales98.84%
Cost of Goods Sold30.29%
  
Gross Profit68.55%
Total Labor Expense21.68%
Total Operating Expense5.29%
Total Loyalty & Store Marketing Expense11.0%
  
Store-Level EBITDAR30.58%
Rent Expense1.90%
  
Store-Level EBITDA28.68%
Royalties7.0%
  
Brand Fund2.0%
  
Post-Royalties & Brand Fund EBITDA19.68%

2021 7 Brew Franchise Financial Disclosure:

Average Net Sales: $2,394,112

Average Profit Margin: 19.68%

franchise specialist
Initial Investment (midpoint)%Profit margin of average franchise salesEstimated profitsTime to recoup investment
$1,186,40015%$359,1164.5 years
$1,186,40019.68%$471,1614 years
$1,186,40025%$598,5283.4 years

In 2021, based on the average sales of the eight stores, at an average 19.68% profit margin, it will take around 4 years to recoup your investment. This is relatively short compared to other franchise opportunities while having a promising average profit margin. You may not get a 19.68% profit margin which would elongate getting a return on your investment. The time to recoup investments incorporates roughly a 1.5-year period to scale up the store. This includes finding the location, building the store, passing break even, and then reaching significant income.

Is the 7 Brew Profit Worth the Franchise Cost?

To assign a valuation multiple for 7 Brew 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. Therefore, we estimate using the data on the overall coffee industry.

Between $1-$5 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.36

Above $5 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.86

When you go to sell a 7 Brew Coffee store based on the median multiple of 0.36 and net sales estimate of $2,394,112, it would sell for $861,880. This is lower than the estimated midpoint investment of $1,186,400.

However, as an owner of multiple 7 Brew, you do have the ability to make a profit. Coffee shop owners with over $5 million in sales have a median multiple of 0.86. So, if you had 5 7 Brew Coffee stores, amounting to $11,970,560 in sales, selling your multi-unit franchise system would amount to $10,294,681. This will make you a profit of over $5 million as the investment would be $5,932,000.

7 Brew

How Many 7 Brew Franchise Units Have Opened and Closed?

As 7 Brew Coffee started not long ago and has been franchising since 2021, it did not report much information on franchise units. However, in the past three years, the number of stores was steadily increasing. With new company-owned stores opened every year and none closed, 7 Brew showed an example for its future franchisees and proved a viable business model and concept. It is projected to open 97 franchise units in the next fiscal year expanding into multiple states, such as Florida and Illinois.

Status of Company-Owned Outlets For years 2019 to 2021

StateYearOutlets at the Start of the YearOutlets OpenedOutlets Reacquired From FranchiseeOutlets ClosedOutlets Sold to FranchiseeOutlets at End of the Year
Arkansas2019520007
2020710008
20218300011
Missouri2019000000
2020000000
2021010001
Totals2019520007
2020710008
20218400012

Conclusion

As a relatively new company, 7 Brew is continually growing in this drive-thru coffee concept. In addition to its short payback period and strong financial performance, 7 Brew is expanding throughout the country which provides prospective franchisees enormous opportunities and stability to start their own business. Although the initial investment is large compared to other small-scale coffee shops, the return is nevertheless promising!

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