Scooters Coffee Franchise Investment Analysis $7.5M Deal Breakdown

0:24Welcome to Acquisitions Anonymous. We don't have 100 % gears anymore. Thumbs down on just the plus inventory. Big thanks to High Level for sponsoring this video and helping us pay for our editors. High Level is the all-in-one CRM that handles your emails, texts, funnels, and more all in one place. Think of it like the Swiss Army knife for small businesses, and you can try it for free for 30 days at gohighlevel.com slash Michael Girdley. All right, just listeners, dear listeners, you should know that I clicked record because Mills started complimenting how good my video camera looks on my podcast setup here so I want to make sure I feel like your last camera setup was like a$5 ,000 setup and this looks like$100 ,000 like easily like it is crisp if you're not on YouTube you need to see this my fellow camera nerd is Bill and Bill will tell you the entire trick is not the camera it's the lighting if you have good lighting it changes everything Michael has zoomed out and showed me this room that he's in right now.

1:25The whole room is just the setup. Like this gas is in the middle of the room. Like there's this giant, like there is a 15 by 15 room that is just for this. And it looks amazing on camera. But if you're standing in the door, you're like, what is going on? This is weird. Yeah. It's like a wall full of lights, but like the shadows in the back looks so moody, Michael. Like it looks very, very well done uh hit or miss today's a hit so thank you very much but sometimes michael dials in and he's got like the old school earbuds like with the wire and like the laptop camera you can see up his nose you know but like today you look great mike well in december my wife was like why are you working from home so much i was like message received message received so yeah well Connor looks good every time too, though.

2:14You're looking great today. Thank you. Bill, your background is fantastic. You look like you're at a palatial estate from like the 1800s. He is at a palatial estate. That's because it is a palatial estate. He just bought it. Bill bought a house from Charlotte just for this office. Oh, okay. Congratulations. Thanks. The office sold him on the house, Connor. How many hundreds of acres it looks like.

2:36So, Connor, you have a deal. Get out the horses. I do have a horse. A horse. I have a deal. If you have a horse deal, you should save it because Heather's not here today. Yeah, Heather's not here. Yeah. So eight Scooters coffee franchises, profitable turnkey. Can you share it? Michael just almost hurt his neck. He whipped his head so fast. Let's take a look. Let's do it. All right. So, yep. Eight Scooters coffee franchises. The asking price is$7.5 million. Gross revenues about$7.5 million as well. They don't disclose EBITDA. Business description, drive-thru QSR coffee franchise. This portfolio represents an opportunity to acquire eight established Scooters Coffee drive-thru franchises across the Louisville metropolitan area.

3:24Offered individually or together, the stores provide flexibility for both single-unit operators and multi-unit investors looking for immediate scale. In 2024, the portfolio produced approximately$7.5 million in net sales and$1.09 million in NOI, reflecting a 15 % margin and average store volumes of about 852. Each location is fully staffed, operating with loyal customer bases and the backing of one of the fastest growing coffee QSR brands in the country. With more than 880 units nationwide, Scooter's Coffee has built its success on a compact drive-thru-only format designed for speed, convenience, and efficiency.

3:59The strength of this offering is reinforced by the broader U.S. coffee market, valued at roughly $70 billion in 2024 and projected to grow at 5 % to 7 % annually. Nearly 60 % of transactions occur through drive-thrus, underscoring customer demand for convenience, a trend that directly supports Scooter's kiosk model. Louisville itself provides a stable foundation with a metropolitan area of $1.4 million, median household incomes of around$71 ,000, and a commuter-driven economy that fuels consistent demand for specialty coffee. Each unit is strategically positioned in high-traffic corridors and established retail trade areas, ensuring visibility and steady customer flow.

4:37Together, these elements create a compelling opportunity to participate in a resilient and expanding segment of the quick service industry, whether through the purchase of a single location or the acquisition of the full portfolio. Louisville, Kentucky, eight operating, they confirm, averaging 664 square feet per unit, included all of the equipment, all the jazz like that. Yeah, so they mentioned about$7.5 million. They do disclose NOI. I didn't see that initially, but about, yeah,$1.09 million in net operating income, about a 50 % margin. It's interesting that they're offering them both individually and as a collective.

5:16We can talk about that. Owner will provide four to six weeks of, or franchisor will provide four to six weeks of comprehensive training. um that's the gist go all the way down really quick connor was there something about like a fee if you go all the way down like the fee is waived let's see yeah franchise transfer includes the waived fee if signed before 2025 so sometimes if you if you transfer a franchise they will uh there will be a transfer fee that the that the franchisor charges um usually it's relatively low It's kind of a, you know, 10 grand-ish to cover just the franchisor's legal costs.

5:54But that's what they're saying here is that they'll, yeah, they'll waive that if done by the end of 2025. Unfortunately, we didn't get it done, so we'd have to pay the fee. And I guess that draws to my attention the fact that they gave us 2024 numbers, not 2025, on the revenue in NOI. Yeah. Yeah, that's really interesting. I'd wonder what, you guys know what the coffee market has done in the last couple of years? I don't, Michael, how long have you been out at the coffee business? Well, Michael, reset for people if they aren't familiar with your background in the coffee. Oh, I started a direct competitor business to this in 2020 and we sold it late 2022.

6:33And the reason we sold it - do you get to? We had three established and a fourth under development. And we sold it to some guys who own the local chain here. Is it still operating? Yeah. Yeah, they are still running it. And yeah, it's still operating. The reason we got out, and it may be what's going on in this market too, the reason we got out is during the SPAC era, there was so much money that came into the space. And we saw them just deploying capital like crazy between Dutch Brothers. We saw Seven Brew coming into town. And basically, they were just going in and outbidding everybody else because they had total cheap access to capital.

7:13And we saw that coming. We were like, we should pick a different game to play than this one. So I guess my question about this deal, by the way, Connor, is what is the real estate situation? Like they don't even talk about it. Are these, are these leased? Are these long-term ground leases? Do they own the land? Does the land come with it? How's that all going to work? because ultimately like that is the biggest determiner of um of like is there a financeable value here is like what are the hard assets and i worry that these are long-term ground leases where they've put up the money for the the buildings and they're paying monthly rent to a landlord which is not ideal yeah i um what caught my eye was the footprint is extremely low was that the case with yours or was it bigger?

8:02Yeah. I mean, it's six. Okay. That's, that's a, yeah, that's a small. And all of them are that size, right? They, they don't have full kitchens. Um, and so you're basically just a couple of espresso machines and a couple of drive-thrus and a bunch of point of sale machines. So how does a long-term ground lease work and why is that, you know, not ideal? Um, well, thank you for asking. I will now mansplain you that. The good news is, yeah, because we're all bros, I can mansplain.

8:32Bros, blame me, Michael. Bros, blame you. Yeah, I think I've told the story before. When a man is mansplaining, it's mansplaining. But when you're just hanging out with your buddies, it's just talking about things. Yeah, exactly. So the long-term ground lease means that you have signed a lease, say, 20, 25, 30 years or sometimes shorter or longer. And you have built a building on top of somebody else's property and you are paying rent to have that building on top of it. And that can mean that, uh, that can go as far as you own the building. They pay for taxes, insurance, or more common is what's called a triple net lease where you build the building and you just pay the landlord every month and all the expenses and everything else are on you.

9:17And banks, banks and financing people tend to not like that as much because it doesn't give them as secure of credit to go after, right? Or collateral. So they would prefer it if you own the land and you own the building, but they will also take it if you just own the building. So that's why I asked like, okay, well, you're charging eight times earnings here almost. Like what else do I get? Do I get the real estate or am I just getting buildings? Because the downside of the building problem is these long-term ground leases end at some point, right? hey, they're going to end 20 or 30 years from now.

9:53And then I have a problem. And the problem is the landlord's going to raise the rent on me. Yeah. And what happens when that expires? Because the landlord has you completely by the you-know-what, right? And that's the point is they can charge you whatever or you have to knock your building down. Is that right? It depends on what the lease says. Sometimes the lease says the landlord gets the building at the end of the lease because a typical building depreciates over 39 years or whatever it is. like that building may be functionally obsolete and you're happy for the landlord to take your problem from you at the end of the lease.

10:24Uh, there's also situations where, uh, it's left totally like unknown. Like, it's just like, okay, well we'll figure it out 30 years from now. Who knows? You know, we may be dead by then. Uh, then the, then the last way will sometimes happen is like somewhere in the middle, like people will get like a right of first refusal to lease the property again. Uh, or there's some sort of, you go to some sort of function where there's like a market value placed on what the lease should be and costs and all that kind of stuff. So it all just depends on what you negotiate with the landlord, but it could be anything.

10:54There's this dynamic too that's happened with all these dollar generals where dollar general is not in the real estate game. They're in the operating business game, but they have created this incredible, beautiful package with a bow on it for 1031 investors where you do a tax deferral and you don't pay tax if you do a light kind of change, you know, selling a building and buying another within a certain very set amount of parameters. But what ends up happening is people sign these 15 year leases with Dollar General and the buildings are built so cheaply that by the end of the 15 years, Dollar General's like, well, we've redesigned.

11:29So we're going to go across the street and put up a new one because that old building is basically just a tin can that like we don't care about. The drive-thru coffee is a little bit different because they're a relatively small amount of real estate and like access is the big thing. Size of the lot, drive-through length. Like I had a piece of property that a drive-through coffee wanted to do a ground lease on and it was competing between two different lots. One lot was too small because this one specific brand had like a 12 to 15 car minimum in the drive-through. Like it couldn't be in the street.

12:06It had to be at least 12 to 15 in the drive-through on the property. And we kind of won out versus somebody else who just had a smaller lot, like a block away. Yeah, that's the, I call it the Chick-fil-A syndrome, which is a lot of times very professional landlords will turn down a Chick-fil-A or a Dutch Brothers because they don't want to have 30 cars stacked in their lot 24-7, taking up all the other spots. And that definitely happens with some of these. Scooters is not Dutch Brothers, obviously, but it is what it is. So Bill, I have to imagine with this, we're taking the average of eight locations.

12:42I would be surprised if all locations perform equally well. I bet there's some stars in this portfolio, and I bet there's some dogs. So you had an average of 852K. Is a unit, based on your judgment, that does 852K of revenue making money? Yeah, you can make money at that. So if you look at public filings, a typical Dutch Brothers is pushing high ones or twos, or low twos in terms of average revenue per spot. I haven't looked at Seven Brew. Your independence shops or your off-brand shops like these scooters, like it is totally normal to do$600 ,000 to one and a half million, depending on location.

13:21And again, this is fundamentally coffee only. There is not a food component. Is that right, Michael? Scooters is a unique one where they do, like they warm you up these pre-prepared meals. uh but by and large dutch brothers and seven brews don't do food okay so that being said though they did say that these businesses are are the locations are offered separately or together so if you get in here and this is a portfolio and there's like two or three dogs you just go i don't want those and you just buy the good ones seems like very desperate to me usually it's like all or nothing you know yeah like who's gonna if you're the franchisee and you own eight let's just assume they only own eight.

14:07They don't own 12 and they're keeping the four best, which would be a really bad sign. What are you going to do? I've dealt with and had friends who are franchisees who are selling off, you know, parts of their portfolio and they've had like, you don't want to hold onto the dogs. What are you going to do with it at that point? It's probably bleeding cash. Like, so it isn't all or nothing. If you're, if you have any strength as a seller, it's all. Yeah. And the question would be like, if they're willing to break them apart already, why would they not break it apart at the onset? Because then you get rid of the dogs.

14:41If there are any that have negative cash flow, your combined number of the good ones is going to have more positive cash flow without the dogs taken into account. So it's like, just write those off and sell the good ones if they're willing to break it apart. I don't know what the terms of their franchise agreement is, but that is a factor too. Because if they're all at one collective thing that if you shut one down, it throws the rest of the terms into question, that's a factor too. But if that is on the table, which it sounds like it is, I don't know why they wouldn't go ahead and carve those losers out.

15:16Bill, why is this on LoopNet? Well, it's on LoopNet because they probably, the Slava Furs, the guy that's representing it, is probably a real estate broker. And he probably doesn't know about BizBuySell. It's on BizBuySell. It's on BizBuySell. It's probably also on LoopNet because they're both owned by CoStar, right, Michael? Yeah. Yeah. So a lot of times you see them syndicated. I have occasionally seen really good businesses for sale on LoopNet that somehow don't make it to BizBuySell. just broker incompetence, which is a leading indicator of all kinds of other broker incompetence that can be both maddening, but also an indicator that you're probably going to get a good deal.

15:53What do you guys make of the fact that they report their earnings in net operating income, which is largely a real estate net income metric? May reinforce Bill's thesis that the broker is a real estate broker. I think part of this, y 'all, is that if you have eight stores, you probably have some type of middle management, right? There's probably like a division manager who's overseeing the managers of these other stores. I'd be willing to bet that net operating income doesn't take that into account. And there's some kind of parent org expenses that aren't being reflected in that million bucks.

16:33So that's a four wall number. And then there's all this, you know, yeah. yeah over that that definitely could be the case so there's definitely to your point mills there's an economies of scale problem with this like you kind of want to have seven or eight stores because you can hire like a real general manager if you're a semi-active owner otherwise if you have three stores you're the pat you're the part-time general manager because it's impossible to afford like a full-time gm for an area so i do like that location two runs out of cups you're the one driving back and forth between them uh if you have eight locations i guarantee at least one day a week probably five days a week somebody doesn't show up when you're supposed to be opening up the store because remember these are you're paying the people that open up these stores you're paying them 12 bucks an hour and then they make a lot of money on tips and you're expecting to be there at 5 a.m on a tuesday every week and like that there if you have eight stores i guarantee at least several days a week, that person doesn't show up.

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19:02And how many employees do you think are opening the store or that are there at any given time, Michael? Depends on how busy the store is, but a Scooters might have two if it's a slow one. If it's a busy like Dutch Brothers, you might have five or six. Yeah, because that's like, that's the other side of something that's really lean from a labor perspective is that when one person doesn't show up, it's 50 % of the workforce is out. you know? Um, so that's definitely a factor. The beauty of this business is you're selling a stimulant to people that doesn't go bad in your refrigerator. You have very little food loss on like a restaurant and all that kind of stuff.

19:41People are addicted to it. I'm raising my hand cause that's me. And like, if I don't have coffee, I will get a headache. And, uh, I have other problems too, but that's my biggest one. And, uh, we all have our voices. Yeah. So, and they drive up to you and they want it every day. It's a consumable and you sell it at anywhere from 50 to 80 % gross margin. And like, it's got a lot going for it. And that's why you see so many coffee places open up and it's actually in the, in the hospitality world, it is the lowest failure rate hospitality concept is selling coffee. Interesting period. Yeah. Cause the Tam is giant, giant.

20:17Do you know what the lowest failure rate small business is? What? Pet supplements. No, I'm kidding. Sorry, Bill. Two-six-eighths back or something or plumbing or something everybody needs. Dentists. Dentists. Yeah. Everybody's got teeth. My guess was casinos, but way off. Well, I mean, this is location is everything, right? I mean, I think you've got to underwrite each one of these separately and the leases on each one and say, do I really want to be here for the next 20 years or however long the lease is before you decide if you want to buy it. Yeah. And it - You just probably have escalations in the lease too.

21:01Yeah. And given that it was established in 2021, I bet there's a pretty long tail on those. And that was one thing I wanted to mention too is if they've actually gotten, I mean, that's five years. So if they've gotten eight open in five years, they've done a lot of groundwork that, you know, if you got it for the right price would be nice given that they've laid a lot of that foundation. But I mean, the multiple to me sounds crazy. What do you all think? If there's real estate included, I'm interested. If there's no real estate included, I'm not really interested. Funny tidbit for you guys. I've made more money being a landlord for coffee shops than I ever made owning the coffee shops.

21:44Like Like that's much more fun. We've, I will say we've roofed several of these and they are incredibly expensive. I mean, they're small, so price per square foot, you kind of throw out the window, but they are so expensive to build. Why? What's so expensive? I thought the whole point would be that they were cheap to build. You just slap them up. You don't need a lot of real estate. I don't get it. I think the way Seven Brew does it, they're modular. They like bring the whole thing in on trucks. So that seems like it would be cheap. I don't understand. Well, scooters, scooters specifically. Yeah, just have a little bit of knowledge of them and their development in an area that I'm familiar with.

22:24They slowed their role out of additional stores because they ended up being so expensive to build. I would be willing to bet they're selling these for about the cost of what it costs them to build them. Well, like scooters, I just looked at, they share in their FDD. It's like they share$692 to$1.5 million. for the total investment per unit. So it's a wide range, but I think you're right. If the middle of that is a million times eight, that's right at what they're selling. So they're just trying to get their money back. I bet they realize this is a huge semi-passive pain in the ass. So fun fact for you guys.

23:06Fun fact for you guys. Yes, that's my new favorite phrase for a small list. so fun fact for you guys if you go into like a starbucks and you see that giant like la morosco like uh espresso machine that everybody has to have the italian one how much do you think those cost 25 000 no you're supposed to say a low number mills sorry when i say a high number three hundred dollars four no three to four thousand i don't No, they're like Audi level costs. They're like$35 ,000 to$50 ,000. I'm sure. That's crazy. Yeah, to make a little espresso. And every espresso nerd has to have one because that's... So you can get Chinese versions of them and knockoffs of them that are a third the price.

23:52And that's what we ended up doing. But yeah, if you go in and look at some of these places, what they spend just on that piece of equipment. We're not talking about all the others. Then there's a grinder. You have to buy a professional grinder. It's not like the one you use in your kitchen. and then all the different fridges and air conditioning because these rooms get really hot like there is a lot of expense that goes in and it's really expensive i mean it's not cheap starbucks has largely shifted i do think that the facts that they stay here about 60 percent i think of of you know coffee consumption goes through the drive-thru starbucks and we've talked about it some on the podcast before and like their you know loyalty program and the fact that they keep all this cash on their balance sheet that you auto deposit, you know, on your Starbucks gold card or whatever.

24:35But they have systematically been shutting down stores that don't have drive throughs. There's one in Columbia, South Carolina that is the first one in South Carolina was here for like 20 years, did not have a drive through, had incredible business, but they shut it down in favor of redeploying stores into drive through. And it's incredible to watch the way that those have, they were early compared to, you know, a lot of these, but now it's just a land grab. I mean, it's, it's a gold rush for who can get the corners for these brands. Yeah. And so here's, here's the other secret about this business that people don't realize.

25:11Uh, there is a huge kind of power law distribution and a commoditization of what's going on. If you go to Seven Brew, Dutch Brothers, Scooters, any of these guys, they all buy their syrups. They all buy their chocolates. They all buy the coffee. They get the milk. It's all commoditized. They all are buying the exact same stuff. Go look at the syrups. It's the same crappy syrup that comes out of some Italian brand that just tastes terrible. And that's the fundamental problem with this business that I realized was unlike McDonald's and Burger King or Chipotle and other food concepts that have a differentiated offering, there is fundamentally no differentiated offering other than who has the cheapest cost of capital and who has the best locations.

25:55And then when you go double-click on these locations, they sell, their top two or three sellers are the same exact recipe. It's a chocolate, caramel, double espresso, iced frappuccino. They all sell that number one. It just has a slightly different name at every single one. And if you go into every single one of them, they sell exactly the same thing. It was our number one seller. It was Dutch Brothers' number one seller. And it was the number one seller for Seven Brew. And you could tell, because you just go ask the, I would figure this out because I just drove through them and I asked the baristas to give me their number one and number two best-selling drinks so I could test them.

26:27And when they did this one afternoon, I realized everybody's selling the same crap. Like it's just, there's no differentiation whatsoever. Well, so what's left, Michael, right? There's brand, which if you're a startup, like that's tough to compete with Dutch Brothers, et cetera. So brand is going to be one of the few motes here. price you know i don't want to compete on low price and i think the biggest one location location location right like so that's all that's left right what else so i'll give you a fourth one there is experience as well right and so dutch brothers does a great job of making it cool to go to their locations uh there is a new coffee chain that's come to the u.s out of china called luck and coffee have you guys heard of these guys yeah i have but i don't know much about it Yeah.