Fifteen years ago, Happy Belly Food Group started in Vancouver in the food business and expanded in recent years by franchising outlets in fast food restaurants.
Franchising offers companies a quick way to expand and build market share. The major drawback of franchising stems from revenue restrictions.
The company selling the franchise gets a one-time franchise fee, ongoing royalties on revenues, usually between two and five per cent, and any revenues from products or materials sold to the individual units.
The time from startup to profit can take years. In Happy Belly’s case, the company is still not profitable after 15 years of operation.
The elusive profits may just be around the corner.
Revenues for the nine months ended September last were about $5.3 million, double the $1.85 million in 2023.
During that period, Happy Belly went from 23 to 55 restaurants.
Loss was $936,000, half of the previous year. Unfortunately, debt of $4.3 million is twice the equity of shareholders.
The company has recently announced signing multi-unit franchise agreements that should help achieve profit, finally.
Happy Belly operates in two segments with consumer products producing breakfast foods under the Holy Crap label and snack foods produced under the Lumberjack brand.
The restaurant franchise started major development two years ago by acquisition of five brands with 13 restaurants.
The Well Healness chain of plant-based foods has 48 units in Ontario, with units in Calgary and Edmonton.
Rosie’s Smash Burgers is based in Ontario with a recent 20-unit agreement signed and 10 units in Manitoba. Rosie’s is not to be confused with the Moose Jaw outlet that was named for a famous madam on River Street.
Smile Roaster Coffee recently signed a 20-unit expansion in British Columbia. Yolk’s Breakfast did a 25-unit expansion. also in British Columbia.
IQ Foods has a 20-unit expansion underway in Alberta.
Ten-unit master franchise agreements have been signed in the Maritimes and Saskatchewan.
If and when these new franchises all open, Happy Belly will have over 200 outlets streaming cash from royalties.
A significant risk comes from the competitive nature of the restaurant business and reliance by some Happy Belly chains on plant-based food.
Sysco Foods, the gorilla of food distributors, now carries Happy Belly products.
Happy Belly shares trade around $1.02 on the Canadian Stock Exchange, up from a low of 31 cents last summer and less than the recent high price of $1.54.
Directors own 15.8 million of the 127 million shares. A $3.6 convertible debenture could trigger massive dilution when and if the holders convert debt to shares. Conversion would also reduce debt by three-quarters.
Happy Belly Food Group presents an interesting story explaining development of a business operation and could one day be an attractive investment.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
