This article is based on its 2022 FDD.
Keep reading or watch the video originally recorded on Vetted Biz Youtube Channel
Kona Ice Inc was founded in 2008 and began offering Kona Ice franchises that same year. To this day, the company has kept its original name and it is based in Kentucky.
The ice cream industry has a lot of demand, and because of this, there are countless companies that focus on selling ice cream. Over the years more and more ice cream franchises have opened and one of them is Kona Ice, which sells ice cream and related products in a mobile environment.
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A profitable way to sell Ice Cream
There are currently 1304 Kona Ice franchises in the United States and that number is growing every year.
Tony Lamb is the founder and CEO of Kona Ice. Tony took inspiration from a bad experience with a “creepy ice cream truck” to start the biggest mobile ice cream franchise in the country.
Kona Ice serves a market with a lot of strong competitors like Haagen-Dazs or Baskin-Robbins. However, it delivers the product in a way that most good ice cream shops do not.
We will analyze if the potential returns are worth the initial investment for a Kona Ice franchise.
How much is a Kona Ice Franchise?
The initial fee for a Kona Ice franchise is $30,000. The upfront fee must be paid before opening the restaurant. A fee of $10,000 must be paid for any additional franchise.
It delivers the product in a way that most good ice cream shops do not.
Kona Ice Franchise Costs:
The estimated initial investment for beginning operations for a Kona Ice franchise is between $150,400 and $174,150.
Estimated Initial Investment
| Type of expediture | Amount | Method of payment | When due | To whom payment is to be made | |
|---|---|---|---|---|---|
| Low | High | ||||
| Initial Franchise Fee | $15,000 | $15,000 | Lump Sum | Upon signing the Franchise Agreement | Us |
| KEV and Installed Equipment | $124,500 | $124,500 | Teo Installments | $5,000 due upon signing the Franchise Agreement and the balance of $119,500 due upon delivery or pick up of the KEV and related equipment | Us |
| Training Expenses | $850 | $950 | As Incurred | As Incurred | Providers of Travel, Lodging, and Food Services |
| KEV Delivery | $500 | $3,000 | Lump Sum | Upon delivery of the KEV and related equipment | Third Party |
| KEV Compliance Fee | $0 | $5,000 | As Incurred | As Incurred | Us or our affiliate |
| KEV Insurance for 3 months | $600 | $1,500 | As Incurred | As Incurred | Our affiliate or Insurance Companies |
| Tax, Title, and Licensing of KEV | $2,000 | $6,000 | Lump Sum | Upon delivery or pick up of the KEV | Government Agencies |
| Initial Inventory | $5,500 | $5,500 | Lump Sum | Before Opening | Us |
| Optional Inventory | $0 | $500 | As Incurred | As Incurred | Us, Suppliers |
| Permits and Licenses | $250 | $1,500 | Lump Sum | As Incurred | Government Agencies |
| Real Estate or KEV Storage | $0 | $1,200 | As Incurred | As Incurred | Third Parties |
| Computer System and Software | $200 | $1,000 | As Incurred | Before Opening | Suppliers |
| Additional Funds — 3 Months | $1,000 | $8,500 | As Incurred | As Incurred | Us, Third Parties |
| TOTAL ESTIMATED INITIAL INVESTMENT | $150,400 | $174,150 | |||
Other fees:
Royalty: $3,000 for the first two years, then $3,500 for years three through six, $4,000 for years 7 through 10.
Technology Fee: $10 to $159.99 per month.
What do you need to open a Kona Ice Franchise?
Kona Ice is continuously looking for passionate individuals that love children and want to open a Kona Ice franchise.
Kona Ice requires you to have a net worth of at least $50,000 and a liquid capital of at least $30,000. The application process is similar to most franchises, you just fill out an application and someone will be in touch with you.
2015 Kona Ice’s Average Profit: $94,868
Kona Ice operation costs are relatively low. While the average franchise overhead is 32%, Kona Ice’s overhead is only 6%. This allows for profit margins of up to 50%.
Based on the average profits claimed by 534 Kona Ice owners, we can estimate that given a midpoint investment of $162,275. It would take you less than 3 years to recoup your investment.
How much do Kona Ice Franchise owners make?
Kona Ice does not disclose the financial information of its franchisees. According to a study made in 2015, the average Kona Ice truck draws in $94,868 but keep in mind that it is not an official figure.
2015 Kona Ice’s Average Profit: $94,868
Kona Ice operation costs are relatively low. While the average franchise overhead is 32%, Kona Ice’s overhead is only 6%. This allows for profit margins of up to 50%.
Based on the average profits claimed by 534 Kona Ice owners, we can estimate that given a midpoint investment of $162,275. It would take you less than 3 years to recoup your investment.
Is Kona Ice’s Profit worth the franchise cost?
After a few years in the business, when you go to sell your franchise based on the median multiple of .84 and gross profit of 2015 of $94,868 it would sell for about $79,689. This is 50% of the midpoint initial investment.
However, since the initial investment is so low, it is not uncommon for someone to open multiple Kona Ice trucks which improve profit dramatically. It is needless to say that the key to making great profits with Kona Ice is to operate multiple trucks.
Income Statement
| 2020 | Restated 2019 | |
|---|---|---|
| Revenues | $24,408.838 | $29,112,971 |
| Cost of goods sold | 11,594,509 | 16,327,732 |
| Gross profit | 12,814,329 | 12,785,239 |
| Operating expenses: | ||
| Selling, general and administrative expenses | 10,019,654 | 8,109,103 |
| Other income (expense): | ||
| Other income – net | 240,752 | 251,002 |
| Paycheck Protection Program forgiveness | 676,700 | – |
| Interest Income | 387 | 349,523 |
| Gain (loss) on sale of property and equipment | (4,504) | 150,714 |
| Interest expense | (200,357) | (81,704) |
| Bad debt recovery (expense) | (115,829) | 9,585 |
| Total other income (expense) | 597,149 | 679,120 |
| Income before income taxes | 3,391,824 | 5,355,256 |
| Income tax (expense) benefit: | ||
| Current | (767,799) | (304,052) |
| Deferred | 41,378 | 81,996 |
| Total income tax (expense) benefit | (726,421) | (222,054) |
| Net income | $2,665,403 | $5,133,202 |
How Many Kona Ice Cream Have Opened and Closed?
System-wide Outlet Summary
System-wide Outlet Summary
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 931 | 1061 | +130 |
| 2019 | 1061 | 1181 | +120 | |
| 2020 | 1181 | 1304 | +123 | |
| Company-Owned | 2018 | 16 | 22 | +6 |
| 2019 | 22 | 14 | -8 | |
| 2020 | 14 | 29 | +15 |
Over the last three years, the company has seen rapid growth. Since 2018 the company has been growing at a rate of more than 100 units per year. This could be an indicator that franchisees are doing really well and the business model is a success.
These numbers sound great but they are too good to be true…
Kona Ice Franchises Have a High Churn Rate
It turns out that the number of transfers (when someone buys an existing franchise) is especially high with Kona Ice franchises. In 2020, for example, 75 units were transferred. It is possible that most of these franchises were about to close and in order to avoid closure Kona Ice Inc made either one of its franchisees buy them out or they bought them out themselves.
Kona Ice Income Statement (Franchisor):
System-wide Outlet Summary
System-wide Outlet Summary
| State | Year | Number of Transfers |
|---|---|---|
Totals | 2018 | 61 |
| 2019 | 42 | |
| 2020 | 75 |
Conclusion
Kona Ice is a different approach to franchising. The fact that you do not need to own or lease any real estate brings the initial investment down significantly which makes it an ice cream franchise worth looking into. However, it is a business that probably will not give you huge earnings all year round unless you are located in a warm region.
If you open a Kona Ice franchise you can expect to recoup your investment in about 3 years. Which is considerably better than most franchises out there. When you go and sell your franchise it will most likely not make your initial investment back if you just operate one unit. However, since the initial investment is so low, you can open multiple locations without the need to drop millions of dollars.
It is hard to determine how well Kona Ice did during the pandemic since the company does not disclose any kind of financial representations of its franchisees. However, looking at Kona Ice Inc’s income statement we know that they had to spend extra money to keep franchises from closing. We can assume that some if not many franchisees probably had a difficult time during 2020.
Location
Ice cream has always been about location, even if it is a mobile unit, this is something that you should think about before opening a Kona Ice franchise. We also suggest that you speak to at least 5 of Kona Ice’s current franchise owners and ask them about their profits and profit margin. In addition to current franchisees, you should speak to 3-5 franchisees that exited the Kona Ice system. This is especially important due to the high franchise for sale/ churn rate for Kona Ice Franchises.
If you think Kona Ice is the right franchise for you, or you would like to explore other franchise opportunities, check out our listing page on the Vetted Biz website for thousands of franchises available for your investment.
