7 Brew Coffee Franchise Profits Disclosed (2024)
This article is based on its 2022 FDD.
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 Franchise 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 Franchise believe that the industry still has white space for another competitor.
Listen to this article
How Is 7 Brew Positioned in the Food & Beverage Industry?
The food and beverage industry is a significant contributor to regional economies and 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 and 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.
What Is the 7 Brew 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 Sales | Royalty Fee |
|---|---|
| Less than $20,000 | 4.5% |
| Between $20,000 and $25,000 | 5.5% |
| More than $25,000 | 7% |
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.
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 1 | Fiscal 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 |
| Exhibit 2 | Periods 1 through 13 of 2021 |
|---|---|
| Measured Stores | |
| Gross Sales | 100% |
| (-) Total Discounts | 1.16% |
| Net Sales | 98.84% |
| Cost of Goods Sold | 30.29% |
| Gross Profit | 68.55% |
| Total Labor Expense | 21.68% |
| Total Operating Expense | 5.29% |
| Total Loyalty & Store Marketing Expense | 11.0% |
| Store-Level EBITDAR | 30.58% |
| Rent Expense | 1.90% |
| Store-Level EBITDA | 28.68% |
| Royalties | 7.0% |
| Brand Fund | 2.0% |
| Post-Royalties & Brand Fund EBITDA | 19.68% |
2021 7 Brew Franchise Financial Disclosure:
Average Net Sales: $2,394,112
Average Profit Margin: 19.68%
| Initial Investment (midpoint) | %Profit margin of average franchise sales | Estimated profits | Time to recoup investment |
|---|---|---|---|
| $1,186,400 | 15% | $359,116 | 4.5 years |
| $1,186,400 | 19.68% | $471,161 | 4 years |
| $1,186,400 | 25% | $598,528 | 3.4 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 Franchise Profit Worth 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.
How Many 7 Brew Franchise Units Have Opened and Closed?
Status of Company-Owned Outlets For years 2019 to 2021
| State | Year | Outlets at the Start of the Year | Outlets Opened | Outlets Reacquired From Franchisee | Outlets Closed | Outlets Sold to Franchisee | Outlets at End of the Year |
|---|---|---|---|---|---|---|---|
| Arkansas | 2019 | 5 | 2 | 0 | 0 | 0 | 7 |
| 2020 | 7 | 1 | 0 | 0 | 0 | 8 | |
| 2021 | 8 | 3 | 0 | 0 | 0 | 11 | |
| Missouri | 2019 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2020 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 2021 | 0 | 1 | 0 | 0 | 0 | 1 | |
| Totals | 2019 | 5 | 2 | 0 | 0 | 0 | 7 |
| 2020 | 7 | 1 | 0 | 0 | 0 | 8 | |
| 2021 | 8 | 4 | 0 | 0 | 0 | 12 |
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 opening 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.
Conclusion
As a relatively new company, 7 Brew Franchise 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!
