How is 'Store-Level EBITDAR' calculated for a 7 Brew franchise, and what expenses are not taken into account?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
vi, and vii above, respectively) from Gross Profit. 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. The average and median Store-Level EBITDAR margins are the numbers resulting arithmetically from calculating the average and median performance, respectively, in all of the sales, profit, and expense line-items appearing in the Exhibit 2 statement.
- ix. Royalties identify the percentage of Gross Sales that a franchisee must pay us (Royalty rates are set forth in Section 5.B of the Franchise Agreement). The Company Stores included within the Measured Stores do pay royalties in the same manner as the Franchised Stores.
- x. Brand Fund identifies the percentage of Gross Sales that we have the right to require a franchisee to pay us as a Brand Fund contribution (under Section 13.A of the Franchise Agreement). These figures do not represent the actual amounts that the Measured Stores spent on advertising, marketing, and related expenses. Brand Fund expenses were actually at 1% of a Store's Gross Sales during Fiscal Year 2024.
- xi. Technology Fee identifies the percentage of Gross Sales that we have the right to require a franchisee to pay us as a Technology Fee (under Section 5.C of the Franchise Agreement). These figures do not represent the actual amounts that the Measured Stores spent on technology and related expenses. No Technology Fee was charged during Fiscal Year 2024.
- xii. Post-Royalties, Brand Fund, and Technology Fee EBITDAR—earnings before interest, taxes, depreciation, amortization, and rent —is calculated by subtracting Royalties expense, Brand Fund expense, and the Technology Fee from "Store-Level EBITDAR" (as defined in note viii above). Rent expense is omitted from Exhibit 2 because of the wide variation in rental payment amounts of which we are aware across the Measured Stores, which is due primarily to the different
rental structures under which such Measured Stores have been leased.
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. These expense categories are defined in notes v, vi, and vii of Item 19, respectively. The EBITDAR calculation does not account for any labor costs or other expenses excluded from the definitions of Total Labor Expense and Total Operating Expense. It is also calculated before interest, taxes, depreciation, amortization, and rent expense.
Total Labor Expense includes store-level payroll, encompassing the store's general manager, benefits, payroll taxes, and bonus expenses, but excludes any area manager salary or incentives. Total Operating Expense includes costs for equipment, supplies, cash handling, credit card processing, repairs, maintenance, third-party commissions, delivery fees, outside services, insurance, and utilities. However, it specifically excludes royalties and marketing expenses. Total Loyalty & Store Marketing Expense covers expenses related to the loyalty program, community outreach, and store-level marketing, but does not include 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, the Store-Level EBITDAR provides a view of the store's operational efficiency. However, franchisees must consider these excluded expenses when projecting their overall financial performance. The FDD advises that rent expense should generally be no more than 5% of the store's gross sales, but this can vary widely based on location and lease terms.
Furthermore, the document provides additional financial metrics such as Post-Royalties, Brand Fund, and Technology Fee EBITDAR, which is derived by subtracting royalties, brand fund expenses, and technology fees from the Store-Level EBITDAR. During Fiscal Year 2024, Brand Fund expenses were set at 1% of a store's gross sales, and no technology fee was charged. These additional calculations offer a more comprehensive understanding of the potential financial outcomes for a 7 Brew franchise, taking into account various fees and expenses.