Do you want to start a Pizza hut franchise and want to know the fees, agreement, details? If YES, here’s how much it will cost you to buy a Pizza hut franchise.
Franchising is simply a system of expanding a business and distributing goods and services. The franchise relationship is normally based on a contract between the franchisor and the franchisee. The franchisor’s duty is to expand its business and support its franchisees, while the franchisee’s duty is to manage and operate their business according to already stated terms and agreements by the franchisor.
The franchisee in exchange for the use of trademark, ongoing support, and the right to use the franchisors system of doing business to sell its products and services, pays royalties and certain stipulated fees to the franchisor. That said, here is a complete guide on how to buy a Pizza Hut franchise in the United States.
Buying a Pizza Hut Franchise for Sale and How Much It Cost
- Details to Note
Pizza Hut, LLC offers franchises, and its franchisees are expected to operate a dine-in, deliver, or delivery and carryout restaurant, offering primarily pizza, pasta and other Italian-style food items under the name, Pizza Hut. The franchisees are free to acquire one or more existing system restaurants from Pizza Hut, or one of its subsidiaries, or may construct a new restaurant.
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Types of Restaurants Offered Under Pizza Hut
Pizza Hut allows franchisees to operate three types of restaurants, and they are,
- Dine-in restaurants – a franchise can operate the iconic red roof restaurant that sells pizza and other consumables approved by Pizza Hut, and they could be sold on a dine-in and carry out consumption basis, or maybe delivered for off-premises consumption.
- Delivery restaurants – franchisees can open a delivery restaurant, delivering approved products for off-premises consumption.
- Delivery/carryout (Delco or Delco-lite) restaurants – here, approved products are sold as carryout and they can be delivered for off-premises consumption basis.
Financial Assistance Offered by Pizza Hut to Franchisees
On an ordinary situation, Pizza Hut does not offer, directly or indirectly any arrangements for financing franchisees initial investment or the continued operation of their business, except for the following;
- YUM Capital Financing Program:
The Yum! Capital financing covers:
- a. The construction of new outlets (including recently constructed outlets which have been open less than 3 months prior to the application date).
- b. Acquisition of existing outlets
- c. Remodeling and upgrading of outlets
This also includes financing existing debt on an outlet as long as the refinanced portion does not exceed $500,000 or 100% of the total remodel or upgrade cost. The maximum amount that maybe borrowed by a franchise is $1,000,000 and the minimum amount is $200,000.
2. YUM minority lending assistance program
The YUM assistance program covers financing for new minority franchisees purchasing an existing outlet, purchasing an existing company-owned outlet, or developing a new outlet. YUM will guarantee 25% of up to $12,000,000 of the principal of the franchised business loan, with a maximum of $3,000,000 per franchisee.
3. Pizza Hut Employee Lending Assistance Program: Pizza Hut offers an optional lending assistance program for qualified former employees of PHLLC and its predecessor and/or affiliates.
- Training and Assistance
Pizza Hut offers its franchisees a level of training which utilizes what the call a ‘blended approach’. The training which lasts between 8 and 12 weeks focuses on technology on the training while offering paper-based materials. The learning follows three standard training models which are;
- eLearning with assessment
- Guided practice
There is also the learning zone which is a technology web-based learning system that is mandatory and free of charge. PHLLC also offers exclusive training for management-level employees. From time to time, Pizza Hut training department may also develop and present further programs and seminars for supervising personnel and employees.
Pizza Hut will not allow any franchisee to erect or operate a system restaurant at any point within 500 yards of any of the franchisees system restaurants. A delivery area normally encompasses 500 households. Franchisees do not receive an exclusive territory so they may face competition from other franchisees that operate other outlets owned by Pizza Hut.
- Duration and Renewal
The initial franchise duration lasts 20 years. There is currently no option for renewal.
Pizza Hut recommends that franchisees or their principal owners should be part of the day to day running of the restaurant(s). Also, each system must be directly supervised by a qualified manager who must have gone through PHLLC’s mandatory training program.
- Rules and Conditions
A franchisee or its manager must not have any business relationship with Pizza Hut’s competitors. Franchisees and their principals must sign a written agreement that say they would maintain the confidentiality of PHLLC’s trade secrets. Franchisees must only sell approved products that PHLLC designates as standard for system restaurants. Franchisees are also free to offer for sale any product that PHLLC lists as optimal for its restaurants.
- Level of Experience
To qualify for a Pizza Hut franchise, an intended franchisee must possess successful retail or successful business ownership experience or at least a management experience in the restaurant industry.
Buying a Pizza Hut Franchise – Financial Requirements
An intended Pizza Hut franchisee must ensure to possess the following;
- Initial investment – $297,000 – $2,144,000
- Net worth – $700,000
- Liquid assets – $350,000
- Strong credit report and history
- Endorsed financial plan for future development
Fees for Royalties and Advertising
A PHLLC franchisee is expected to pay the following fees and royalties;
- Initial franchise fee – $25,000
- Royalties (monthly service fees) – 6% of gross sales
- Advertising fees – 4.25% of gross sales
Note that the above does not include the initial investment required to construct the restaurant, and expenses for the grand opening of the restaurant.
- Length of Approval Process
The initial qualification which involves a series of background checks and interviews may generally take 10-12 weeks. Identifying and securing an opportunity may take 3-9 months depending on size and scope of such opportunity. But note that once your trade area has been approved, and you have signed your development agreement, you have just one year to open for business.
- Equipment for Use
As a rule, a Pizza Hut franchisee is not allowed to use equipment or furnishing he or she already owns in his restaurant. You need to liaise with Restaurant Supply Chain Solutions (RSCS) on standards and specifications concerning furnishings, equipment and approved suppliers. Pizza Hut would as well supply an architecture and engineering team to provide a franchisee with standard plans he can use.
- Food and Consumables Supply
Pizza Hut would provide franchisees a list of approved suppliers, and you are expected to purchase your supplies from these companies. Purchasing of food, packaging and equipment used in the Pizza Hut system are conducted primarily through the RSCS.
- Monthly service fee -6% of gross sales
- Taxes – as levied by the authorities
- National advertising – 2.5 – 3% of gross sales
- IPHFHA dues – 2.5% of gross sales
- Local advertising – the difference between 4.5% of the monthly gross sales and the required national advertising contribution rate
- Corporate advertising – the difference between 4.5% of the monthly gross sales and the required national advertising contribution rate
- Digital innovation fund – $0.27 per online order
- Revenue management solutions fee – $500 per year, per unit
- Software training fee – $1,500 plus travel and living expenses
- Software maintenance/support fee – $1,792 per unit, per year for all services listed in FDD.
- Inspection and testing costs (if paid by the franchisee) – $0 to $50,000 depending on the product
- Late charges – currently 1.5% per month
- Relocation – maximum $25,000
- Transfer fee – $2,500 plus an additional $250 per unit transferred
- Others inclusive as outlined in the FDD
Buying a Pizza Hut Franchise – A Step by Step Guide
1. Request a Franchise Disclosure Document (FDD)
When an intended franchisee has decided to acquire a Pizza Hut franchise after having made all his or her research, the first thing to do is to request for a franchise disclosure document from Pizza Hut. The franchise disclosure document, also called Uniform Franchise Offering Circular (UFOC) is a document that outlines the list of rules and fees a franchisee is meant to follow and pay. It equally includes every information about the franchisor like their financial and legal history.
In your initial relationship with Pizza Hut, you are to request, or you would be sent a franchise disclosure document upon your indication to own and run a Pizza Hut franchise. According to Business Wire, Pizza Hut’s FDD contains detailed information on the franchise system including its history, executive management team, financial performance, franchise related litigation and bankruptcy (if any), unit growth and turnover.
The FDD document for Pizza Hut also includes the terms and conditions that applies to franchisees and the operation of a unit, as well as the franchise agreement that must be signed later on.
2. Meet Up
After the intended franchisee must have read and understood the franchise disclosure document, it is now time to organize a meeting with the franchisor. This meeting enables you to analyze Pizza Hut’s corporate culture, policies and maybe individual personalities of the managers.
The meeting involves one-on-one meetings with managers and stakeholders, group presentations and visits to existing franchises. A franchisee is expected to ask pertinent questions concerning the company and their franchise offering (maybe seeking clarification of the FDD).
3. The Franchise Agreement
This document comes to the fore after the meeting, that is if you still want to go on. The franchise agreement is a contract that gives the franchisee legal rights to open a franchise. The franchisee is free to hire an attorney to help him clarify the rules and regulations. In the event of discrepancies with what you were told initially, then you should make sure to clarify it. This is why it is very necessary to go over the franchise agreement with a fine-toothed comb.
4. Seek Funding: After signing the franchise agreement, Pizza Hut expects you to pay up your franchise fees and send it along with the contract. So you need to ensure that you have enough funds to take care of this.
5. Get a Location: After paying your franchise fee, it is now time to pick the right location for your business. Note that Pizza Hut has certain location guidelines that must be followed to the latter. Ensure that none of your restaurants is within 500 yards of another franchise or it won’t be allowed. You are also free to buy or lease your location.
6. Go for Training: As you are putting together your restaurant, you are now ready to begin your compulsory training as outlined in Pizza Hut’s FDD. The training which lasts between 8 and 12 weeks would train the franchisee in marketing, negotiating with suppliers, filing permits, bookkeeping, hiring and training employees and lots more.
7. Get Ready to Start Selling: When you are done with your training, you should now face the business squarely. You need to complete your remodeling, leasing or purchasing of equipment, filing inventory, hiring and training employees and other fine points. Ensure that every single detail has been taken care of in preparation for the opening day.
8. Open in a Big Way
Once everything is all set, then it is time to open your restaurant in a big way. You are advised to spend up to 20 or even 25 percent of your marketing budget on preparations because a Grand Opening gives you better and faster publicity. After the Grand Opening, the franchise is now in place, and your business has started. You then need to put in all efforts to ensure the success of the business henceforth.
A Brief History of Pizza Hut
- Date of Incorporation – 1958
- Started franchising – 1959
- Headquarters – Plano, Texas
Pizza Hut is a subsidiary of Yum! Brands and it is one of the world’s biggest pizza restaurant companies that operate more than 6,200 restaurants in the United States, and more than 4,000 restaurants in other 100 countries of the world. Pizza Hut makes and serves varieties of pizza including Pan Pizza, Thin and Crispy, Veggie Lovers, Meat Lovers and more.
In the late 1990s, PepsiCo drew together its restaurant businesses including Pizza Hut, Taco Bell, and KFC and they were overseen by a single senior manager. Currently, Pizza Hut serves various types of pizzas, pasta and Buffalo wings, and it has over 160,000 employees. Pizza Hut has had a lot of luck experimenting with pizza offerings in international markets.
In 2015, Pizza Hut removed artificial flavours and colours from its pizza line, and eliminated BHA and BHT additives from its meats in 2016. As at 2016, Pizza Hut had 16,063 units and it made gross sales of $13,700,000,000 billion, still maintaining its leading position as the World’s most successful pizza company.