Red Robin Franchise Cost, Franchise Fee and Initial Investment

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The original Red Robin stood at the corner of Furhman and Eastlake Avenues E. in Seattle. The old restaurant was first called Sam’s Tavern. The owner, Sam, sang in a barbershop quartet and could frequently be heard singing the song “When the Red, Red Robin (Comes Bob, Bob, Bobbin’ Along)“. He liked the song so much that he eventually changed the name to Sam’s Red Robin.

Eventually Sam sold the business and the name was dropped to become just “Red Robin”. After 10 years of tweaking the menu and concept, the business started to grow through franchising. Known for their endless baskets of French fries, Red Robin now has over 500 stores across the United States.

So the bottomless fries aren’t enough to satisfy your appetite and you want to buy a Red Robin Franchise but wondering what it costs? We reviewed the Red Robin Franchise Disclosure Document and found that the estimated cost to open a new Red Robin Franchise store ranges from $2,220,000 to $4,115,000 for a freestanding prototype building or $1,865,000 to $3,635,000 for a standard-size, in-line space prototype. This includes an initial franchise fee paid to the franchisor of $35,000.

The ongoing royalty fee paid to the franchisor is 5% of gross sales. You must contribute a percentage of your gross sales to the Cooperative advertising fund (currently 0.5%) each period. The ongoing National Advertising and Promotion Fund fee is currently 2% each accounting period. The ongoing local advertising fee is 1.5% of gross sales in each calendar quarter. The ongoing regional or local advertising cooperative is equal to a maximum of 1.5% of gross sales, credited against your local advertising requirement.

How Much Money Can you Make as a Red Robin Restaurant Franchisee?

The average Red Robin Restaurant generates around $3,000,000 in sales. On that $3MM in sales, the average EBITDA (Earnings before interest, taxes, depreciation and amortization) is around 16%. At 16%, the Red Robin franchise owner makes around $480,000 per year before paying administrative staff or paying debt interest or taxes.

Is Red Robin a Good Investment?

We don’t offer financial advice, so you should work with a financial adviser or accountant to determine a wise investment, but here are the parameters for how to view the investment.

Since we estimated $480,000 per year in earnings for a Red Robin location (pre-G&A EBITDA), we must compare this to the investment cost. We also see that the median (average) investment cost to build a Red Robin location is around $3M. Therefore, the return on investment for Red Robin (without debt) is around 16%.

In order to determine if something is a good investment, you must compare your potential return versus other investment opportunities. If a 16% pre-tax return is better than your other opportunities then Red Robin may be a good investment.

Red Robin Estimated Initial Investment

The total estimated cost to begin operation of a Red Robin Restaurant ranges from $2,220,000 to $4,115,000 for a freestanding prototype building or $1,865,000 to $3,635,000 for a standard-size, in-line space prototype. Like most concepts, the majority of these costs are in construction and equipment costs. Here is how the investment breaks down:

  • Initial Franchise Fee: $35,000
  • Smallwares & Supplies: $40,000 – $50,000
  • Initial Inventory: $25,000 to $35,000
  • Pre-opening Expenses: $150,000 – $250,000
  • Annual Insurance premiums: $50,000 – $70,000
  • Liquor License: Variable
  • Site Work: $75,000 – $500,000
  • Pre-construction: $125,000 – $400,000
  • Building Contruction: $800,000 – $1,500,000
  • Furniture, Fixtures & D├ęcor: $700,000 – $950,000
  • Exterior Signage: $120,000
  • Additional Funds: $100,000-$200,000
  • Total Estimated Initial Investment: $2,220,000 – $4,115,000

Red Robin Net Worth Requirement

Maybe you can find the money to build a new Red Robin, but along with that Red Robin is also going to check out your net worth. The current net worth requirement to become a Red Robin franchisee is greater than $100,000.

Red Robin Average Sales

According to a review of the franchise disclosure document (FDD), the average sales for Red Robin are around $3,000,000 per year. Here is how the sales break down between company-owned and franchised restaurants:

Red Robin Number of Locations

At the end of 2018, there were 554 Red Robin Locations. 89 of these units were franchised and 465 units were company owned. Here is what the unit location counts have looked like for the past couple years:

Red Robin Franchise Term

The term for the franchise agreement is 20 years from the date the Franchise Agreement is signed. There is no right to renew the term of the Area Development Agreement or Franchise Agreement.

Red Robin Royalty

The ongoing royalty fee paid to the franchisor for a Red Robin Restaurant. This amount is payable on the 15th day following the end of each accounting period.

Red Robin Cooperative Advertising and Promotion Fund

You must contribute a percentage of your Gross Sales that is designated by Red Robin. Currently this is 0.5% to the CAP fund each accounting period. This amount is payable on the 15th day following the end of each accounting period. This may be utilized for market studies, advertising and public relations studies or services, creative design and production of advertising and marketing materials, advertising copy and commercials, tracking costs, agency fees, customer relationship management and engagement marketing, admin costs and any other costs associated advertising.

Red Robin National Advertising and Promotional Fund

You must contribute a percentage of your gross sales that is designated by Red Robin. Currently this is set at 2% to NAF each accounting period. This amount is payable on the 15th day following the end of each Accounting Period. This also may be utilized for market studies, advertising and public relations studies or services, creative design and production of advertising and marketing materials, advertising copy and commercials, tracking costs, agency fees, customer relationship management and engagement marketing, admin costs and any other costs associated advertising.

Red Robin Local Advertising

You must spend a percentage of gross sales each calendar quarter on locally approved advertising activities. This is currently set at 1.5% of gross sales and is paid as incurred. If your expenditures for approved local advertising activities do not aggregate 1.5% of your gross sales annually, you must contribute the deficiency to the NAF.

Red Robin Regional or Local Advertising Cooperative

The maximum fee paid to the regional and local advertising cooperatives is a maximum of 1.5% of gross sales. This amount is credited against local advertising requirement. Contributions to regional or local advertising cooperative are credited toward your obligations to your local advertising spend requirement.

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