Newk’s Eatery Franchises: $1.8M AUV and 24% Profit Margins

With a varied menu with lots of healthy options to choose from, Newk’s Eatery has become a popular go-to restaurant for many Americans. It’s also a fast growing franchise: since 2005 the chain has expanded and now has over 100 locations in the US.

What’s even more interesting with Newk’s Eatery is its financial profile, that’s another reason why it’s such a popular franchise among franchisees.

Indeed, whilst you would need to invest about $1,089,000 to open a new location, a single New’s Eatery restaurant has an Average Unit Volume of $1,897,500: that’s a 4 years payback on average.

How much can you really make with a Newk’s Eatery franchise? How much does it really cost? Should you invest in a Newk’s Eatery franchise? Let’s find out!

Key stats

Franchise fee$40,000
Royalty fee5.0%
Marketing fee2.75%
Investment (mid-point)$1,176,000
Average sales$2,224,000
Sales to investment ratio0.4x
Payback period[franchise_value_investment_payback]
Minimum net worth$3,000,000
Minimum liquid capital$1,500,000
Source: FDD 2022

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What is Newk’s Eatery?

Newk’s Eatery is an American chain of fast-casual cafes based in Jackson, Mississippi.

The chain was founded in 2004 by Don Newcomb, Debra Bryson, and Chris Newcomb as Newk’s Express Café in Oxford, Mississippi. It later changed to Newk’s Eatery in 2014.

It serves sandwiches, soups, salads, California-style pizzas, desserts, fresh fruit, coffee, specialty drinks, wine, beer, and a large variety of related items.

The chain began franchising in 2005 and now has more than 100 units in the US.

Newk’s Eatery franchises pros and cons

Pros

  • Comprehensive training: The brand provides detailed training to its franchisees to help them establish and grow a successful business. Its initial training consists of 74 classroom hours and 276 on-the-job training hours. Also, the brand helps them with the grand opening and ongoing training.
  • Exclusive territory protection: The franchisor grants the franchisees permission to operate their restaurant and sell approved products in a designated area. The brand does not operate competitive channels or license any other franchise to operate in the protected area.
  • Marketing support: The Newk’s Eatery franchise has a dedicated marketing and advertising strategy. It helps franchisees create product awareness and local store public relations through national media, regional advertising, website development, SEO, digital and influencer marketing, targeted promotional campaigns, and other social media tools and resources.
  • Flexible build-outs: The brand offers its franchisees efficient and market-sized franchise formats such as pads or commercial sites, malls, food courts, and existing restaurant conversion formats. Franchisees can make the most of the available real estate opportunities, stand out from the competition, and expand into multi-unit restaurants.

Cons

  • No direct franchise financing: Newk’s Eatery does not offer direct financing to its franchisees for start-up fees, equipment, or inventory. Also, it does not guarantee any lease note or grant on behalf of its franchisees.
  • Not a passive investment opportunity: The franchisor does not allow for an absentee business ownership opportunity. Franchisees must be actively involved in operating their business.
  • Not a part-time business: Franchisees are required to operate on a fixed schedule as per the parent company’s operating hours.

How much does it cost to own a Newk’s Eatery franchise?

On average, you may need to invest around $1,089,225 to open a Newk’s Eatery restaurant.

The investment amount is an estimated average that depends on several factors. For example, real estate prices impact the overall required investment as you would spend more for the land. Same goes for the size of your restaurant which impacts building and equipment costs.

Generally, the investment ranges between $971,100 and $1,207,350 (Franchise Disclosure Document 2022).

Startup costs

Why would you need this much amount at the beginning, you may ask? This amount covers all the startup costs you may need to pay to start a restaurant.

In addition to the initial franchise fee of $40,000, the investment amount covers:

  • Formation Costs: business licenses & permits, leasehold improvements, fixtures, furnishings & equipment, architect fees, other professional fees, training expenses, etc.
  • Initial Marketing: grand opening advertising fee 
  • Operating Costs: rent and utility deposits, insurance deposit, initial inventory of food and paper supplies, working capital for first 3 months, etc.
Type of costLowHigh
Initial Franchise Fee$40,000$40,000
Formation Costs$868,100$1,068,350
Initial Marketing$15,000$15,000
Operating Costs$48,000$84,000
Total$971,100$1,207,350
Franchise Disclosure Document 2022

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What’s the AUV of a Newk’s Eatery franchise?

On average, a Newk’s Eatery franchise has an Average Unit Volume (AUV) of $1,897,476.

The sales number is the annual median turnover of 77 franchised restaurants that were continuously opened in the entire 2021 fiscal year.

How profitable is a Newk’s Eatery restaurant?

We estimate that an average Newk’s Eatery franchise makes $454,825 in profits per year. This represents a 24% profit margin (adjusted EBITDA margin).

The 24% adjusted EBITDA margin is on the lower end compared to similar franchises as per our intelligence (~25-27% industry average). This is mainly due to higher COGS as a percentage of revenue (31.4% vs. 25% for restaurant franchises). 

Note that for most franchises, Newk’s Eatery doesn’t disclose any cost information for franchised restaurants. Indeed, we had to use the company-owned restaurant data for COGS (31.4% sales), labor costs (28.9%), and the industry average for rent (8%) instead.

Profit and lossAmount% of sales
Sales$1,897,476100%
COGS$(595,807)31.4%
Labor$(547,991)28.9%
Rent$(151,798)8.0%*
Royalty + marketing fees$(147,054)7.8%
Adjusted EBITDA$454,825~24%
* industry average

Should you invest in a Newk’s Eatery franchise?

We found Newk’s Eatery is a profitable franchise: its payback period (as in the time to recoup your initial investment) is 3.8 years on average, that’s an excellent number.

This means that if you were to open a new Newk’s Eatery location, you would repay the entire initial investment within 4 years. For example you would repay all your loans, any investors and your own funds if you invested yourself (e.g. the initial franchise fee for example).

This is quite impressive. Indeed, we found that restaurant franchises have on average a payback period of 5 to 7 years. So any number below 5 years is excellent.

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Disclaimer

Disclaimer: This content has been made for informational and educational purposes only. We do not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the information presented in the article. You should not construe any such information or other material as legal, tax, investment, financial, or other professional advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, advertisement, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.

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