FDD Talk: Average Annual Sales of Cheba Hut Restaurants (a Sub Sandwich Franchise with a Counter Culture Theme)
by AMBROSIO on FEBRUARY 16, 2012
What is Cheba Hut?
1. Cheba Hut is a quick service sandwich restaurant that features toasted submarine sandwiches, original sauces, salads, soups, chips, brownies, and other high quality food and beverage items in a fun, casual, and distinctive atmosphere.
2. While studying at Arizona State University and working part-time as a delivery driver, Scott Jennings, founder and CEO of Cheba Hut, noticed a severely underserved market for late night deliveries. Food that was delivered on campus usually lacked in quality. He also noticed that on most of his late night deliveries, his customers were inhaling! Putting the two together, Scott developed the Cheba Hut “Toasted” Subs concept and opened the first store near the ASU campus in 1998.
3. With its catchy tagline “Where the only thing fried is the occasional customer!,” Cheba Hut is clearly having fun with its counter culture theme.
4. Today, there are about 14 Cheba Hut restaurants located in Arizona, Colorado, New Mexico, Oregon, California, and Iowa.
5. Cheba Hut encourages its operators to be themselves and bring their own personality and individuality to the concept.
Estimated Initial Investment, Royalty Fees, and Marketing Fees to Open and Operate a Cheba Hut Restaurant
1. The estimated initial investment to open a Cheba Hut Restaurant ranges from $149,500 to $299,500, inclusive of the initial franchise fee ($25,000), leasehold improvements ($25,000 to $100,000), and furniture, fixtures, and equipment ($42,000 to $60,000).
2. The Royalty Fee is 4% of Revenues, payable weekly.
3. The Promotions Fee is 2% of Revenues, payable weekly.
Cheba Hut Unit Summary for Years 2008 to 2010
1. Franchised Cheba Hut Restaurants at the End of the Year
- 2008 – 6
- 2009 –8
- 2010 – 10
2. Affiliate-Owned Cheba Hut Restaurants at the End of the Year
- 2008 – 2
- 2009 – 3
- 2010 – 3
Average Annual Sales of All Affiliate-Owned and Franchised Cheba Hut Restaurants That Were Open and Operating During the Entire Fiscal Year Ended December 31, 2010 (11 Restaurants)
2. Averate time in operation: 5 years
3. The Cheba Hut restaurants included in the analysis are located in Arizona (5 restaurants), Colorado (5 restaurants), and New Mexico (1 restaurant).
4. Number of Cheba Hut restaurants with sales below $600,189.09: 6 (55% of total)
5. Number of Cheba Hut restaurants with sales above $600,189.09: 5 (45% of total)
6. Highest annual sales volume of an affiliate-owned Cheba Hut restaurant: $739,936
7. Lowest annual sales volume of an affiliate-owned Cheba Hut restaurant: $489,202
9. Highest annual sales volume of a franchised Cheba Hut restaurant: $760,584
10. Lowest annual sales volume of a franchised Cheba Hut restaurant: $423,488
Please check out Item 19 of Cheba Hut’s FDD to read all legal disclaimers for their financial performance representations.
Completely Random and Purely Personal Opinion of Franchise Chatter
1. When it comes to average unit volume, Cheba Hut places surprisingly well in the sub sandwich franchise pecking order. With an average unit volume of around $600k, Cheba Hut ranks just below marquee names like Jimmy John’s and Schlotzsky’s (both in the $700k to $800k range), on par with soon-to-be household name Firehouse Subs (also in the $600k ballpark), and well ahead of lower-tier brands like Togo’s (between $500k and $600k), Cousins Subs (close to $400k), and Submarina (just over $300k).
2. The estimated initial investment to open a Cheba Hut restaurant (from $149,500 to $299,500) and the ongoing royalty fees (4% of revenues) are on the very low end for food franchises. In addition, Cheba Hut’s average sales-to-investment ratio runs from 2 to 4 (where the ideal is 2 and up). All these add up to a compelling investment opportunity.
3. Cheba Hut’s numbers are particularly impressive because the brand is hardly known outside the neighborhoods they operates in. Local word of mouth is probably very strong, and their marijuana-inspired shtick is surely attracting curiosity visits from new customers. But Cheba Hut’s counter culture theme is very subtle, so it really is the quality of the food that keeps customers coming back.
4. In order to stand out, you gotta have a gimmick — Cheba Hut certainly does! But since its chosen theme is somewhat controversial and polarizing, I expect this to hold Cheba back from becoming a large national chain. But this doesn’t mean they can’t be wildly successful in their niche.
5. Cheba Hut franchisees don’t get a lot of leverage from their promotional advertising contributions (currently 2% of revenues), compared to franchisees of larger chains with significant advertising budgets like Jimmy John’s and Firehouse Subs, not to mention the big kahuna, Subway.
6. When choosing a franchise to invest in, it’s not just about the bottom line, although that is certainly one of the most important considerations. What the brand stands for must be consistent with your own values because you have to be comfortable talking about and promoting the business. With Cheba Hut, they are clearly just having fun with the counter culture theme and all references are subtle and hardly offensive. But you still have to ask yourself if you find the brand’s positioning acceptable.