This article is based on its 2022 FDD.
Panda Express is a fast-food franchise restaurant chain that primarily serves American Chinese food. Their menu consists of items that are inspired by traditional Chinese cuisines, such as orange chicken, Kung Pao chicken, teriyaki chicken, and Beijing Beef. And the sister company of Panda Express is Panda Inn, which is a more upscale, table service restaurant that offers similar meal items. Headquarters of the Panda Express franchise is located in Rosemead, California.
According to their FDD, Panda Express anticipates that most of their franchises will operate in “captive venues” under licensing agreements, such as airports, hospitals, casinos, and other similar facilities.
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The Panda Express concept was founded in the 1970s by the Cherng family — Chef Ming Tsai Chern and his children Andrew and Peggy Cherng. It originally started off as Panda Inn, a more upscale, sit-down restaurant. Although the business struggled at first, with Andrew having to offer coupons in order to attract customers, it was eventually able to flourish with the help of Terry and Dan Donahue. With this connection, they were able to expand their restaurant concept into food courts, creating the now-known fast food restaurant Panda Express. In the beginning, Panda Express was only found in food courts, but eventually they expanded into brick and mortar concepts. Now, less than 2% of existing Panda Express franchises exist in food court areas.
History of Panda Express
According to the Panda Express website:
1983
The first Panda Express unit was founded in the Glendale Galleria in Glendale, California.
1987
The Orange Chicken entree was invented by Chef Andy Kao for Panda Express. Panda Express credits themselves for pioneering this popular American-Chinese dish, and variations of this are served in American-Chinese restaurants.
1997
The first Panda Express drive-thru restaurant opened in Hesperia, California.
1998
Panda Express opened their first baseball stadium restaurant in Angel Stadium.
2001
Panda Express opened their first restaurant in a theme park location at Six Flags in Valencia, California.
2007
Panda Express opened their 1,000th location in Pasadena, California.
2011
The first international Panda Express restaurant opened in Mexico City. Now, they have locations in Guam, South Korea, Puerto Rico, Canada, and Dubai.
How Much is a Panda Express Franchise?
Panda Express Franchise Fee
$25,000
The initial license fee for a Panda Express franchise is $25,000. This is the upfront fee that must be paid when opening a Panda Express franchise.
Panda Express Franchise Cost
The estimated total investment necessary to begin operation of a Panda Express franchise ranges from $377,100 – $1,884,000. This does not include the Panda Express Owner Salary.
Additional Cost Breakdown
The following costs are part of the upfront costs included in the initial investment. Many of these are one-time fees that are needed to launch the franchise.
Additional Cost Breakdown
| Lease of Premises (Initial 3 months rent) | $10,000 – $425,000 |
| Leasehold Improvements | $80,000 – $700,000 |
| Furniture, Fixtures, Equipment, and Supplies | $90,000 – $310,000 |
| Initial Inventory | $2,200 – $10,000 |
| Computer Hardware and Software | $14,000 – $21,000 |
| Non-resettable cash register | $6,000 – $8,000 |
| Insurance | $30,000 – $75,000 |
| Expenses incurred during initial training | $13,000 – $29,000 |
| Architectural and design fees | $17,000 – $50,000 |
| Construction Supervision | $17,000 – $70,000 |
| Sales Tax Deposits | $4,500 – $10,000 |
| Telephone, Fax, and Other Communication Related Fees | $500 – $1,000 |
| Licenses and Permits | $1,500 – $30,000 |
| Misc. Funds | $0 – $10,000 |
| Additional Funds (3 months) | $60,000 – $110,000 |
Overall, Panda Express has a wide range of additional costs and fees. Their additional costs for the estimated total investment is on the higher end, especially in terms of rent, leasehold improvements, and insurance.
Ongoing Costs and Fees
The royalty fee for Panda Express is 8% of gross sales or the minimum amount of $4000. The franchisee must pay the higher of the two.
How Much Do Franchise Owners Make?
Panda Express Franchise Sales Figures
The financial performance representations in Panda Express’s FDD were taken from currently operating licensed franchisees in the year 2020. Also, their financial performance representations are categorized by type of licensed location: in this case the airport, casino, hospital, military, and university, as well as the total numbers.
Below is a chart that showcases the most important of the financial information given by Panda Express — their average gross sales by location, median gross sales by location, minimum gross sales by location, and maximum gross sales by location.
Financial Performance by Location
| Airport | Hospital | Military | University | Casino | Total | |
| Total Gross Sales | $19,059,939 | $1,309,846 | $39,026,818 | $28,408,154 | $3,527,500 | $91,332,258 |
| Average Gross Sales | $1,191,246 | $436,615 | $1,027,022 | $424,002 | $881,875 | $713,553 |
| Minimum Gross Sales | $184,872 | $224,732 | $224,732 | $123,104 | $420,343 | $123,104 |
| Median Gross Sales | $995,281 | $436,391 | $901,747 | $373,496 | $879,890 | $528,794 |
| Maximum Gross Sales | $3,453,579 | $620,658 | $2,560,583 | $1,162,498 | $1,347,439 | $3,453,579 |
In general, it seems that Panda Express units do the best financially in airport locations, with them having the highest maximum gross sales at $3,453,579; highest average gross sales at $1,191,246, and highest median gross sales at $995,281. However, the military locations outperform airport locations for total gross sales at $39,026,818 and the casino locations outperform for minimum gross sales at $420,343.
It is important to note that these financial representations only showcase the figures for gross sales, there is no information on the net profit of the average franchisee. In fact, given the high initial investment for a Panda Express franchise, one possible implication is that there might be a high operating cost, which could eat into even the high gross sales of Panda Express. Panda Express Owner Salary can be up to 15% of the sales and even more for top performing locations.
Panda Express Income Statement
| 2020 | 2019 | |
|---|---|---|
| Revenues | ||
| Royalty Income | $ 8,436,498 | $ 13,570,336 |
| License fees | $ 430,635 | $ 1,583,865 |
| Initial fees | $ 519,800 | $ 548,679 |
| Rental income | $ 145,900 | $ 145,900 |
| Total Revenues | $ 9,532,833 | $ 15,848,780 |
| Expenses | ||
| Depreciation | $ 880,596 | $ 917,504 |
| Professional Services | $ 255,787 | $ 554,673 |
| Salaries and Benefits | $ 54,045 | $ 147,338 |
| Miscellaneous | $ 40,618 | $ 100,636 |
| Insurance | $ 36,839 | —- |
| Property Tax | $ 153,180 | $ 199,700 |
| Total Expenses | $1,421,065 | $1,919,851 |
| Income before foreign tax provision | $ 8,111,768 | $ 13,928,929 |
| Foreign tax provision | $ (162,830) | $(228,828) |
| Net income | $ 7,948,938 | $ 13,700,101 |
Panda Express Franchisor Income Statement Key Insights
Overall, Panda Express is a profitable business, making almost $9,500,000 in 2020. Yes, the majority of their revenue comes from royalty income, and this could be due to the fact that Panda Express charges a relatively high royalty fee at 8%, compared to the franchise average of 6%. Also, their expenses are relatively small compared to their revenue, meaning that they are able to make a significant net profit according to their income statement. In fact, their net income in 2020 was almost $8,000,000.
How does this compare to other franchises in the food and beverage industry? Despite the fact that Panda Express is a major name in the industry, its revenues are relatively small compared to other franchises. However, it is important to keep in mind that the financial information revealed in their income statement is fairly limited, so the following comparisons are based on revenues from royalties and license fees rather than restaurant sales.
Papa John’s made a little over $7,000,000 in royalties and license fees, while the Crumbl Cookies franchise made a little over $2,000,000 in royalties. However, Taco Bell made over $260,000,000 in franchise and license fees, far more than any of the three aforementioned franchises. However, this could be because Taco Bell has more franchise units on average than Panda Express, and they have a higher royalty fee at 10%.
Compared to other franchises, Panda Express lacks transparency in regards to their financial statements as they give no indication of the revenue they make from their company-owned units.
Panda Express Franchisor Cash Flow Statement
Panda Express Cash Flow Statement
| 2020 | 2019 | |
|---|---|---|
| Cash Flows from Operating Activities | ||
| Net Income | $7,948,938 | $13,700,101 |
| Adjustments to Reconcile Net Income to Net Cash | ||
| Provided by (used in) operating activities | ||
| Depreciation | $ 880,596 | $ 917,504 |
| Effects of Changes in Operating Assets and Liabilities | ||
| Accounts Receivable | $1,090,849 | $(246,377) |
| Due from Affiliate | $ (9,179,635) | $ (14,869,105) |
| Prepaid Taxes | $ 337,034 | $ (337,795) |
| Deferred revenue | $ (267,799) | $ 309,824 |
| Net cash provided by (used in) operating activities | $ 809,983 | $ (525,848) |
| Cash Flows from Investing Activities | ||
| Purchases of Property and Equipment | $(674) | —- |
| Cash used in investing activities | $(674) | —- |
| Net change in cash and cash equivalents | $ 809,309 | $ (525,848) |
| Cash and cash equivalents – beginning of period | $ 1,545,759 | $2,071,607 |
| Cash and cash equivalents – end of period | $ 2,355,068 | $ 1,545,759 |
| Supplemental cash flow information | ||
| Foreign income taxes paid | $ 162,830 | $ 228,828 |
| Noncash investing and financing activities | ||
| Property and equipment financed with affiliate | —- | $507,395 |
Cash Flow Statement Key Insights
Overall, Panda Express is able to retain about 25% of their net profits in liquid assets. In 2020, their net income was almost $8,000,0000, but their cash and cash equivalents was $2,355,068 at the end of the fiscal period. This is probably due to the fact that, according to their cash flow statement, there is almost $10,000,000 due to Panda Express from affiliates, meaning that while they own those assets they are being held in another account.
How Many Panda Express Units Have Opened/Closed?
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 108 | 125 | +17 |
| 2019 | 125 | 138 | +13 | |
| 2020 | 138 | 140 | +2 | |
| Company-Owned | 2018 | 1897 | 1979 | +82 |
| 2019 | 1979 | 2046 | +67 | |
| 2020 | 2046 | 2099 | +53 | |
| Total Outlets | 2018 | 2005 | 2106 | +101 |
| 2019 | 2106 | 2184 | +78 | |
| 2020 | 2184 | 2239 | +55 |
Overall, the number of Panda Express units has been growing over the past three years, but at a decreasing rate. For example, in 2018 the net change of franchised units was +17, but in 2020 only 2 units were added. Furthermore, for the amount of Panda Express units existing in the system, the growth rate is relatively small, but this could be due to the COVID pandemic in 2020. At the same time, the number of Panda Express company-owned units is growing at a much faster rate than the franchised units, and has been doing so for the past three years. This is probably due to the fact that there exist many more Panda Express corporate units than franchised units, which could be a sign that Panda Express invests most of its energy and resources into internal development instead of to their licensed/franchised system.
Conclusion
Panda Express is one of the most prominent American-Chinese fast food chains in the United States, and they have franchises in 34 states of the U.S. Licensed franchisees will enjoy the benefit of a well-established brand and an extensive restaurant chain system. Furthermore, the gross sales of Panda Express units detailed in the Item 19 of their FDD is relatively high.
However, there are some cons with investing into a Panda Express franchise. A high total initial investment and operating costs really only makes it accessible to investors with a substantial net worth. Furthermore, it seems that Panda Express is not as devoted to developing their franchise units compared to their internal development of company-owned units. Finally, franchisees must build their Panda Express units in an already existing retail space, meaning that they cannot construct their own free standing unit.
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