How is 'Store-Level EBITDAR' calculated for 7 Brew, and what expenses are not taken into account?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
Store-Level EBITDAR does not take into account any labor costs or other expenses excluded from the definitions of Total Labor Expense and Total Operating Expense in notes v and vi above and is before interest, taxes, depreciation, amortization, and rent expense.
"Store-Level EBITDAR" is calculated by subtracting Total Labor Expense, Total Operating Expense, and Total Loyalty & Store Marketing Expense (as defined in notes v, vi, and vii above, respectively) from Gross Profit.
Gross Profit means Net Sales less Costs of Goods Sold.
- v. "Total Labor Expense" is defined as actual Store-level payroll, including the Store's general manager and benefits, payroll taxes, and bonus expense.
It does not include any area manager salary or incentives.
- vi. "Total Operating Expense" includes expenses such as equipment, supplies, cash-handling, credit-card processing, repairs, maintenance, third-party commissions and delivery fees, other outside services, insurance, and utilities.
Royalties and marketing expenses are excluded.
- vii. "Total Loyalty & Store Marketing Expense" includes expenses related to (a) our "buy 10 drinks get the 11th free" loyalty program, which is highly utilized by our repeating customer base, (b) our Community Outreach program, which gives discounts to service men and women from the community, and (c) Store-level marketing expenses.
It does not include any Brand Fund contributions.
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 61–73)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, Store-Level EBITDAR is calculated by subtracting Total Labor Expense, Total Operating Expense, and Total Loyalty & Store Marketing Expense from Gross Profit. Gross Profit is defined as Net Sales less Costs of Goods Sold.
The 7 Brew FDD specifies that Store-Level EBITDAR does not account for labor costs or other expenses excluded from the definitions of Total Labor Expense and Total Operating Expense. It is calculated before interest, taxes, depreciation, amortization, and rent expense. Total Labor Expense includes store-level payroll, the store's general manager's salary, benefits, payroll taxes, and bonus expenses, but excludes any area manager salary or incentives. Total Operating Expense includes expenses like equipment, supplies, cash-handling, credit-card processing, repairs, maintenance, third-party commissions, delivery fees, other outside services, insurance, and utilities, but excludes royalties and marketing expenses. Total Loyalty & Store Marketing Expense includes expenses related to the loyalty program, community outreach, and store-level marketing expenses, but does not include any Brand Fund contributions.
For a prospective 7 Brew franchisee, understanding the components of Store-Level EBITDAR is crucial for assessing potential profitability. By excluding certain expenses like rent, interest, and taxes, this metric provides a baseline for evaluating a store's operational efficiency. However, franchisees must consider these excluded expenses when projecting their overall financial performance. The FDD also notes that Brand Fund expenses were actually at 1% of a Store's Gross Sales during Fiscal Year 2024, and no Technology Fee was charged during Fiscal Year 2024, which are factors to consider when estimating expenses.
Furthermore, the document highlights that rent expense is omitted from the EBITDAR calculation due to the wide variation in rental payment amounts across different stores, which is primarily due to the different rental structures under which the stores have been leased. 7 Brew generally advises that rent expense should be no more than 5% of the Store's Gross Sales. Franchisees should carefully analyze their specific rental agreements and market conditions to accurately forecast their rent expenses and overall profitability.