Pizza Franchise Report 2011
RegulationsThe food service and restaurant industry is one of the most regulated industries in the United States. A variety of regulations, laws and ordinances govern the operation of any restaurant business. The following is a list of regulations that will affect the everyday running of a pizza franchise.
- Food Safety
- Nutritional Labeling
- Minimum Wage, Tips and Overtime
- American with Disabilities Act
- Child and Teen Labor
The U.S. Food and Drug Administration, the U.S. Department of Agriculture along with state and local health departments administer and enforce regulations that govern food preparation and service and restaurant sanitary conditions.
There are often variations in licensure requirements and regulations from state to state. While a franchisor may provide assistance in assisting the franchisee determine the federal, state and local laws that affect the franchise, investigating, understanding and the application of licensure regulations is the franchisee’s sole responsibility.
Staffing and Training
Each pizza franchise offers training courses and material specific to their system. Most often, the franchisee receives an operations manual, store operations manual, kitchen training manual equipment specifications manual and counter service training manual. All training programs are split into two components: classroom training and on-the-job training. The franchise training will also cover how to hire and train staff for a successful franchise. The franchisor will also supply the training equipment needed for this training and will be contactable if any help is needed. While training, the franchisee should expect to cover his or her expenses along with the expenses of his or her staff.
As with any food establishment, it is paramount to select the best location possible. When selecting a pizza franchise location, a franchisee will need to take into consideration the local demographics, traffic patterns, parking, character of neighborhood, competition from other businesses within the area and the size and appearance of the site. A franchisor may or may not assist in the selection of a franchise site. It will state in the FDD of that franchise how much assistance is given in the selection of a site. Generally, the prospective franchisee will need to submit a location proposal for the approval of the franchisor. If the site location is not approved, the franchisee will need to select another site. If a franchisee is unable to find a suitable location, after a pre-established amount of time, it may constitute a default and the franchise agreement could be terminated. The boundaries and terms for each franchise territory will vary. Some franchisors will grant an exclusive territory to the franchisee meaning the franchisor will not appoint any other franchisees in the territory or conduct businesses themselves in the territory. In non-exclusive territories the franchisee may face competition from other franchisees, or from other outlets or channels of distribution that the franchisor may own.
Length of the Franchise Agreement
The term of the initial franchise agreement for a pizza franchise ranges from five years to 20 years depending on the franchise. The majority of pizza franchise agreements are for an initial term of 10 years. Some franchisors do not offer renewal terms.
The range of investment between franchises can be large due to variations in their business systems and what it requires to execute them. In addition, some franchisors offer different types of their franchise business that vary in investment cost from one another. The following chart illustrates this fact by showcasing the estimated initial investment ranges of 20 pizza franchises. The following data was compiled from the online sources and FDDs of the 20 franchises represented. Please consult the FDD of a specific company for further information regarding that franchise as some costs change occasionally.
Comparison of Estimated Initial Investment Ranges for Selected Pizza Franchises
Ongoing costs can be just as variable as the initial costs of investing in a pizza franchise. One cost that is consistent between pizza franchises is the royalty fee. The royalty fee is assessed for the franchisee to continue reaping the benefits that come with being a part of the franchisor’s business system.
Royalty Fees of the 20 Selected Franchises
|Hungry Howie's Pizza & Subs||5%|
|Papa John's||4.5% - 5%|
|Pizza Hut||6% - 6.5%|
|Pizza Inn||4% - 5%|
|Sam & Louie's Pizzeria||5%|
Other commonly assessed ongoing fees of pizza franchises include advertising fees and technology fees among others. While these fees are common with pizza franchises, the structure and amount can vary greatly between franchisors. For example, while some franchisors assess a single fee for all advertising efforts, other franchisors may assess multiple fees for advertising efforts. Additionally, some fees are assessed on a sliding scale based upon the franchised business’ revenue, and some fees have minimum payment requirements. Select fees are assessed on an as needed basis such as audit fees or costs for additional training. Carefully review the franchisor’s FDD for more detailed on all costs involved in investing in that respective franchise.