The Fat Shack
The Fat Shack is a chain of restaurants primarily aimed at the late-night college party set in Ft. Collins, CO. As the name would suggest, they make no pretensions to serving healthy menu items. In fact, when they demonstrated their sandwich making, it pretty much put to bed any idea that someone might walk out with anything less than a full gut bomb.
The demonstration included taking a roll and stuffing it with french fries, mozzarella sticks, some cheese steak, and jalapeño peppers, jamming it closed, and then rolling it into tinfoil so it all didn't come out. The presumption then being that someone was to eat it like a Mission-style burrito. It looked, simultaneously disgusting and really, really tasty. The sharks attested to its tastiness when they were served their samples.
In addition to what was shown, the entrepreneur said that chicken fingers could also be added to the mix and that they also serve triple-stacked cheese burgers and fried funnel cakes from their menu. The calories for these things (not that anyone eating at a place called The Fat Shack probably cares, is usually between 700 and 800 calories though some items could be as much as 2,000.
The Fat Shack was founded in February 2010. The founding entrepreneur stated that he put himself through college playing online poker and used some of that money to take over a bagel shop from 6pm until 4am in New Jersey to test out his creations and the market for them. After proving it to be a success, the entrepreneur moved to Fort Collins, CO, to open a full location. Since 2010, The Fat Shack has made $22,000,000 in sales.
Currently, The Fat Shack operates eleven locations in Colorado, nine of which are franchises. Including the franchise locations, The Fat Shack saw $5,700,000 in sales over the previous year. The worst performing store does $500,000 in sales and still makes 10% profit which does conflict with the fact that the entrepreneur said the average profit per store is between $40,000 and $45,000.
In the previous year, the franchise corporation took in $300,000 in fees and royalties, making a profit of $170,000. The entrepreneur estimates earning between $400,000 and $450,000 in revenue the next year. This also conflicts with what the entrepreneur said about having five new franchises ready and waiting on funding that would bring revenue in of up to $700,000 and a profit of $450,000.
Franchises pay the franchise corporation an initial $18,000 fee and a 6% royalty on all sales. As stated above, the entrepreneur said that there are five in the pipeline waiting on funding. The entrepreneur says that he has personally funded a few stores because he targets younger entrepreneurs himself who, most likely, already have some relationship with The Fat Shack as employees on some level. Mark wonders whether the better strategy might not be to pursue multi-location operators but the entrepreneur says that he prefer "grinders".
The entrepreneur states that he has a vision of opening The Fat Shack in locations across the country.
Making a Deal
Robert wonders why the entrepreneur would pay a distribution when the money could clearly be used to expand. The entrepreneur states that he is willing to pay a distribution to the sharks if they want one but that he, personally, keeps his money in the company. Robert then makes an offer of $250,000 for 17% equity but without a distribution until the company reaches a specified size.
Lori bows out of the deal, stating that she's not as passionate about it as the others. Mark says he has issues with the "healthiness" of the food (something he'd just brought up in the previous episode with Doughp) but, nevertheless offers $250,000 for 17% like Robert, claiming that The Fat Shack will take a while to grow and that 17% is the only way he can foresee getting his money back.
In response to this, Daymond drops his offer down to 17% as well.
Considering that, in just the last episode, Mark said he wasn't willing to make an offer on Doughp, a cookie dough kiosk concept in San Francisco because he wanted to keep his food portfolio healthy, not just offering but coming to a deal with The Fat Shack does seem a little unfair. From your Stats Shark's perspective, the entrepreneur behind Doughp seemed more driven and seemed to have more consistent numbers than The Fat Shack and, yet, she didn't even get an offer.
Also, cookie dough, while certainly not good for you if eaten all of the time, is really more of an occasional treat. And, given the existing location and the expansion plans for Doughp, it seems as if it's more for tourists to enjoy while visiting a place than something that might set up in a neighborhood for everyday consumption. The Fat Shack, on the other hand, seems geared to be an every weekend post-drinking destination for college students. One could be forgiven for asking one's self how that is, firstly, equivalent or, secondly, better and somehow fitting in with a healthy eating portfolio.
Obviously, the sharks can and should invest in anything that will make money. It's kind of the point of the show. But it's also a little disappointing to hear that a shark uses their portfolio to encourage certain things that they find to be a social good, denying an honest entrepreneur a chance to expand, in one episode and then just ditch that idea in the very next episode for something that may be even worse.
Just... err... food for thought, if you will.
- Just for reference, the daily recommended caloric intake for a woman is 2,000 calories and, for a man, 2,500. Put that in your pipe and smoke it.
- This is actually a little bit brilliant. As the entrepreneur stated, the bagel shop closed at 3pm every day (since its main business was no doubt selling bagels to the morning crowd). This leaves an unused storefront that the bagel shop owner still had to pay 24-hours of rent on. Allowing the entrepreneur to utilize the shop and the kitchens during hours when it couldn't conflict with the primary business both allowed the store to remain open but also provided an additional source of rent. It's actually a bit of a wonder that more stores don't do this.
- A "grinder" is someone who just keeps working away at something until achieving some level of success. It is considered the opposite of trying to win the lottery or having an over night success.
- A "distribution" is a distribution of the profits a company has made in a quarter or a financial year to the owners of the company in proportion with their percentage ownership. So, for example, a company paying a distribution of $1,000,000 to its shareholders would pay $250,000 to a shareholder who had a 25% equity stake. Distributions are common in family held businesses and partnerships. Larger companies may pay a dividend but generally hold on to at least a percentage of profits as operating and expanding capital.
- The entrepreneur behind Doughp stated that the existing location was on Pier 39 in San Francisco, a tourist trap, and wanted to expand to Las Vegas, no doubt to appeal to visitors there.