Do you want to start a Pizza business by buying Pizza Hut franchise? If YES, here is how much it cost to open a Pizza Hut franchise and their fees, agreement, requirements. Pizza Hut LLC is a fast-food giant that was founded in 1958 in Wichita, Kansas, by Frank and Dan Carney. They presently have their corporate headquarters at 7100 Corporate Dr. Plano, TX 75024, United States.
Pizza Hut started franchising in 1959 and they have 16,796 restaurants worldwide as of March 2018, making it the world’s largest pizza chain in terms of location. It is a subsidiary of Yum! Brands, Inc., one of the world’s largest restaurant companies.
Although the startup costs can seem high, Yum! Brands Inc., the parent company of Taco Bell, and KFC, lends substantial support that includes help with advertising, business coaching, training, development, and cooperative sourcing.
Performance improvement programs and support are also offered to each new franchisee, along with 12 to 16 weeks of required training, paid for by Pizza Hut, at a test restaurant in Dallas, Texas (franchisees are responsible for their own travel arrangements and accommodations). Pizza Hut currently allows franchises to operate three types of Pizza Hut-branded units at specific locations.
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.
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.
Financial Investment Required to Open a Pizza Hut Franchise
Pizza Hut has the franchise fee of up to $25,000, with total initial investment range of $302,000 to $2,185,500.
- Initial investments: $302,000 – $2,185,500
- Net-worth Requirement: $700,000
- Liquid Cash Requirement: $350,000
- Strong credit report and history
- Endorsed financial plan for future development
Below is the breakdown of the estimated initial investment
- Initial Franchise Fee: $25,000 – $25,000
- Equipment: $100,000 – $450,000
- Opening Inventory: $4,000 – $8,000
- Small wares: $10,000 – $50,000
- Building and Site Improvements: $180,000 – $1,575,000
- Land: Varies
- Delivery Vehicles: Varies
- Computers: $20,000 – $40,000
- Computer System Training: $0 – $1,500
- Additional Funds (3 months): $5,000 – $21,500
- Miscellaneous: $10,000 – $22,000
- Advertising: $0 – $16,500
- Start-Up “Other”: $3,000 – $4,000
ESTIMATED TOTAL = $357,000 – $2,213,500
Please note that the estimated initial investment range covers multiple variations of new “Traditional” restaurant types.
Below are Other Fees to Note;
- Monthly Service Fee: 6% of Gross Sales (6.5% under certain circumstances).
- Taxes: As levied by tax authorities.
- System Advertising Fund Contribution: 4.75% of Gross Sales
- International Pizza Hut Franchise Holders Association (IPHFHA) Dues: 4.75% of Gross Sales (set by franchisees)
- Digital Innovation Fees: $0.38 per transaction conducted through a digital or other automated channel established by the franchisor.
- Restaurant Technology Fee (currently, a “SUS Fee”): $2,500 per year
- Software Training Fee: $1,500 plus travel and living expenses.
- Initial Training Costs: All living and transportation expenses of all trainees. The amounts are unknown and may vary depending upon factors such as the third-party supplier selected and the franchisee’s distance from training. Additional and subsequent trainee charge: $500 per person per week.
- On-Site Training and Assistance: The then-current training fees plus expenses.
- On-Going Training: The then-current training fees plus expenses.
- Proprietary Products: If developed in the future, franchisees must buy proprietary products from the franchisor (RSCS, if it offers and sells same), its affiliate or designee.
- Inspection and Testing Costs: Franchisees must reimburse PHLLC for all costs and expenses incurred in connection with the review, inspection and/or approval of a proposed product or supplier, including any salary, travel and lodging expenses.
- Audit: The amount of the audit expenses is unknown and may vary depending upon factors such as the auditor selected.
- Late Charges: Currently 1.5% per month
- Unauthorized Closure: An amount equal to 24 times the average Monthly Service Fees paid or due with respect to the closed System Restaurant during the prior calendar year.
- Relocation: Varies, depending on the franchisor’s costs in connection with reviewing and/or approving the request.
- Transfer Fee: $2,500 plus an additional $250 per System Restaurant transferred
- Advances: Varies
- Indemnification of PHLLC: Varies
- Attorneys’ and Experts’ Fees, Court Costs: The amount of these fees and costs are unknown and may vary depending upon factors such as the attorneys and experts selected and the court costs.
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;
i. 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.
ii. 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.
iii. 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.
Steps on How to Open a Pizza Hut Franchise
Please note that in order to be considered for a franchise, potential franchisees must have a strong credit history and meet some minimum requirements. To open a Pizza Hut restaurant franchise, you must have a net worth of more than $300,000.
The approval process can take up to a year—10 to 12 weeks of background checks and interviews, followed by three to nine months of identifying and securing a location—and once approved, a franchisee has a year to open their store.
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.
- Complete franchisee preliminary questionnaire
- Franchise Disclosure Document (FDD) issued, FDD receipts signed and returned
- Financial assets verified and geographic interests specified
- Complete franchise application, credit and background checks conducted
- Review goals, approval process, designated training and prepare operations plan with Pizza Hut
2. Meet Up for Operations Interview
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).
- Complete due diligence (i.e., contact existing franchisees, finalize operating plans, etc.)
- Complete interview with operations team
- Candidate’s existing operations visited, if applicable
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. Leadership Team Approval
- Visit restaurant for half-day, in-store experience
- Attend a “Meet the Team Day” at the Center of Restaurant Excellence in Plano, TX
- Meet with Leadership Team and Pizza Hut team members. Discuss Opportunities for Acquisition and Development
5. 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.
6. 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. 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. You are also free to buy or lease your location.
7. Go for Training and Assistance
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.
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.
8. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.