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The pizza business is a proven money maker. It has a lot of good things going for it: strong demand, high margins and low overhead, among them.
It’s very tempting to just open a small mom-and-pop pizza place to avoid spending on the franchise and royalty fees. I think this is a realistic option for most people because the product itself does not vary significantly from one pizza place to the next — whether it’s from a franchise pizza restaurant or an independent operation.
But to help those who want to invest in a pizza franchise, I decided to compare four top pizza companies by the numbers to see if there are real differences among them. I was pleasantly surprised to discover a few interesting points of distinction among the different brands. I hope this post helps potential franchisees differentiate one pizza franchise from the other and find the perfect fit.
1. Pizza Hut (Ranked #13 in Entrepreneur Magazine’s Top 5oo Franchises of 2011)
What makes this pizza franchise different?
- Pizza Hut is the world’s most recognized pizza franchise brand, with more than 6,000 restaurants in the US and more than 5,600 restaurants internationally.
- They are a subsidiary of Yum Brands, the largest operator of restaurants in the world (with more than 37,000 restaurants), so the financial strength, stability and resources of this franchisor is unmatched by its peers.
- They offer a more extensive menu than their competitors. They heavily advertise and promote wings and pasta, aside from pizza.
What are the financial requirements to become a franchisee?
- $250,000 minimum net worth; $250,000 in liquid assets
What are the non-financial requirements to become a franchisee?
- The prospective franchisee must have successful business ownership or management experience, ideally in the restaurant or retail industries.
- If the prospective franchisee does not have any restaurant experience or is going to be an absentee owner, an experienced manager, approved by Pizza Hut, must be hired.
- A Pizza Hut franchisee must have the intention to own 5 Pizza Hut franchise locations within four to five years, if opportunities are available. None of the other pizza franchises require their franchisees to open (or plan to open) multiple stores.
What is the initial franchise fee?
- The initial franchise fee for a Pizza Hut franchise is $25,000.
What is the monthly royalty fee?
- 6% of gross sales
What is the required contribution to advertising?
- 4.25% of gross sales
What is the total initial investment?
- The total initial investment for a Pizza Hut franchise location ranges from $302,000 to $620,000.
What is the size of an average store?
- For the “Red Roof” dine-in restaurant format, the typical size is from 2,500 to 4,000 square feet.
- For the delivery and carryout restaurant format, the typical size is from 1,000 to 1,400 square feet.
Does the owner need to be the operator?
- No, particularly if the owner does not have restaurant experience — in which case, an approved manager must be hired.
How long is the training period?
- 8 to 10 weeks, and is conducted in a certified training center in Dallas, TX. The owner and/or the key operator must attend the training.
Bottomline: The Pizza Hut franchise is perfect for someone whose goal is to own at least 5 restaurants within 4-5 years — and has the financial capacity to do so — under a brand that is globally recognized and with a menu that is not just limited to pizza.
2. Papa John’s (Ranked #23 in Entrepreneur Magazine’s Top 5oo Franchises of 2011)
What makes this pizza franchise different?
- Papa John’s prides itself on serving a better quality pizza by using higher quality ingredients, such as a hand-tossed original crust, all-natural sauce, fresh cut vegetables, and real meat and cheeses (“Better Ingredients, Better Pizza“).
- News: They are aggressively trying to grow the Papa John’s pizza franchise system this year by offering huge incentives for developing a Papa John’s restaurant (under Papa John’s 2011 Development Incentive Program). Under the incentive program, subject to certain exceptions to be disclosed to approved new franchisees, Papa John’s will:
- Waive the franchise fee
- Charge a 0% royalty rate for up to 12 months
- Provide free ovens
What are the financial requirements to become a franchisee?
- Minimum of $50,000 in cash or liquid assets
- Minimum net worth of $150,000
- Ability to obtain financing up to $200,000
What are the non-financial requirements to become a franchisee?
- The franchisee must have at least one partner with a successful business management background and one partner who qualifies as the principal operator. For single units, a single person can be both owner and operator.
- In cases of multiple unit franchise ownership, the principal operator must have prior general management experience relative to the number of units to be developed and must own or have the right to own at least 5% equity in the business within 12 months of hire.
What is the initial franchise fee?
- $25,000 for a traditional location
- $5,000 for a non-traditional location (such as those in universities, airports, military bases, stadiums, theme parks, convenience stores, among others)
What is the monthly royalty fee?
- 5% of net sales
What is the required contribution to advertising?
- For traditional stores, the franchisee must spend at least 7% of net monthly sales on marketing (which covers national, co-op, and local marketing) and $9,000 must be spent on grand opening advertising for each of the first two restaurants (in case of multiple unit ownership).
- For non-traditional stores, the franchisee is only required to spend 25% of the contribution of traditional stores.
What is the total initial investment?
- For traditional stores, the total initial investment ranges from $160,000 to $395,000, with the average coming in at around $220,000.
- For non-traditional stores, the total initial investment ranges from $56,850 to $260,000.
What is the size of an average store?
- A traditional Papa John’s pizza franchise in a strip mall location ranges in size from 1,200 to 1,400 square feet.
- No average size was given for non-traditional locations.
Does the owner need to be the operator?
- No, particularly if the owner does not have any quick service restaurant experience — in such case, a qualified principal operator must be hired to run the restaurant.
How long is the training period?
- The total training time is approximately 6 weeks. The principal operator must pass the management training program, which combines both classroom eduction on all aspects of the Papa John’s business and hands-on training.
Bottomline: The Papa John’s pizza franchise is a good choice for someone who is interested in opening a well-known pizza restaurant offering delivery services — either in a traditional or non-traditional format — and is not necessarily committed to being a multiple restaurant owner at the outset.
Click here to read Part 2
Click here to read my review of Red Brick Pizza
Click here to read my review of Toppers Pizza
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