How to Finance a Pizza Hut Franchise
If you’re thinking about buying a restaurant franchise, Pizza Hut is a possibility.
The 61-year-old pizza chain had about 7,500 U.S. locations at the end of 2018. It has more than 18,000 restaurants worldwide. Pizza Hut, which is well-known for introducing Pan Pizza, offers a range of traditional pizzas, pasta, wings, breadsticks, desserts and soft drinks available for dine-in, carryout and/or delivery.
Parent company Yum Brands, which also owns Taco Bell and KFC, reports that 99% of Pizza Hut locations are franchised. Pizza Hut’s system sales were $12.2 billion in 2018.
The brand is accepting new applications for franchises, so keep reading to find out more about the costs of buying a franchise and how to finance one.
- Costs of buying a Pizza Hut franchise
- Becoming a Pizza Hut franchisee
- How to finance a Pizza Hut franchise
- The bottom line
Costs of buying a Pizza Hut franchise
Understanding the costs of buying a franchise and potential profits can help you determine if it’s the right business investment for you.
Pizza Hut requires a substantial upfront investment from franchisees, ranging from $297,000 to $563,000 for a delivery and carryout location. You may pay more — or less — depending on the type of asset you buy. Pizza Hut states that its delivery/carryout restaurant is its most cost-effective option.
Here’s a breakdown of the initial costs of opening a delivery and carryout Pizza Hut. We’ll break these down in more detail after:
- Initial franchise fee: $25,000
- Development services fee: Up to $35,000
- Development fees: Vary
- Equipment: $100,000-$175,000
- Opening inventory: $4,000-$8,000
- Small wares: $10,000-$18,000
- Building and site improvements: $125,000-$200,000
- Computers: $15,000-$30,000
- 3 months’ worth of additional funds: $5,000-$20,000
- Miscellaneous costs: $10,000-$22,000
- Advertising: Up to $25,000
- Other startup costs: $3,000-$5,000
Franchisees will pay a $25,000 initial franchise fee, a development services fee of up to $35,000 and various other development fees. Pizza Hut must approve the site you choose before you can build the restaurant. It has up to six months to grant approval, and then you have up to a year to open.
The company’s architecture and engineering team will send standard building plans to the franchisee. Constructing the restaurant is the responsibility of the franchisee. New franchisees can opt to pay Pizza Hut a fee to complete the construction process. The company can also provide franchisees with a list of general contractors who have experience constructing Pizza Hut restaurants. Pizza Hut estimates that building and site improvements cost $125,000 to $200,000.
Pizza Hut does not permit franchisees to use any equipment or furnishings they already own. As such, they must work with Restaurant Supply Chain Solutions to make these purchases. Equipment, such as pizza ovens and refrigeration, costs between $100,00 and $175,000, while small wares, such as cookware and food storage, have a price tag of $10,000 to $18,000.
Computers for your Pizza Hut franchise will run you $15,000 to $30,000. Franchisees should plan to spend $4,000 to $8,000 on opening inventory. While not a requirement, delivery vehicles will add to the upfront costs of opening a Pizza Hut, if you choose to acquire them.
Getting your Pizza Hut location up and running also comes with an array of other expenses. Pizza Hut estimates that you will need $5,000 to $20,000 in additional funds for the first three months to cover things such as payroll, insurance premiums, licenses and permits, hiring, utilities, paper products and cleaning supplies.
You may incur an estimated $10,000 to $22,000 in miscellaneous costs to cover things such as training, restaurant setup, utility deposits and other expenses leading up to your grand opening.
Other startup costs, such as uniforms, banners and office supplies, may cost $3,000 to $5,000. Pizza Hut recommends that new franchisees offering delivery or delivery and carryout run an optional 18-week advertising campaign to drive sales, which could cost up to $25,000. None of the expenses outlined in the initial investment estimate are refundable.
Determining whether this is a worthwhile investment can be tricky. While Pizza Hut does offer information on financial performance in its Franchise Disclosure Document (FDD), it does not make any promises about the profit percentage you should expect. The company recommends that potential franchisees “conduct their own independent investigation to determine potential sales and profit levels.”
Becoming a Pizza Hut franchisee
If you’re interested in becoming a Pizza Hut franchisee, you’ll need to meet some minimum financial requirements. You must have a net worth of $700,000, liquid assets that total at least $350,000, a strong credit report and history and an “endorsed financial plan for future development.”
Pizza Hut will also evaluate your business experience. The company looks for candidates who have owned successful restaurants or retail businesses in the past, or have experience managing restaurants. You must demonstrate a growth mindset and passion for operations.
Getting approved to own a Pizza Hut restaurant typically takes 10 to 12 weeks. You will need to undergo a series of background checks and participate in interviews. Once the company qualifies you, it can take another three to nine months to find and secure an opportunity for a Pizza Hut location.
Pizza Hut offers franchisees support in learning how to run the restaurant and meet quality expectations. You (and/or your key operator) must complete a Pizza Hut training program at a certified restaurant in Dallas, which takes eight to 12 weeks. While Pizza Hut covers the cost of the training, franchisees must pay for travel, lodging and other expenses associated with attendance. Pizza Hut also offers advertising campaigns that can help drive sales for some new restaurants.
Note that you’ll owe 6% of gross sales for royalties and 4.25% of gross sales for national advertising.
Pizza Hut has decades of experience selling pizza and has restaurants in more than 100 countries. It also became the official pizza sponsor for the NFL in 2018. While the brand is recognizable, Pizza Hut’s recent sales haven’t been as robust year over year as those at other names in the portfolio of Yum Brands, a public company. Same-store sales at Pizza Hut in 2018 were even to those in 2017, while Taco Bell saw 4% same-store growth and KFC was up 2% in the same time period.
Pizza Hut is working on improving sales by modernizing some locations into fast-casual restaurants with quick service. However, there’s no guarantee that those efforts will turn things around for Pizza Hut. People who are interested in joining Yum Brands may want to consider franchise opportunities with the company’s other brands before opening a Pizza Hut. It may be a good idea to wait and see how the renovation of Pizza Hut’s existing restaurants impact sales for the brand in the near future before opening a new franchise.
How to finance a Pizza Hut franchise
One of the biggest perks of owning a franchise is the ability to start a business that has already developed a model that has proven profitable in other locations. However, getting the license for a franchise and opening a new location comes with large upfront costs and ongoing expenses. Franchisees may need to secure financing to pay for everything.
Here are some loans and financing options available to potential Pizza Hut franchisees:
- Franchiser financing: Pizza Hut does not offer financing to franchisees. It can provide the names of banks and financial institutions that may be interested in helping people finance a Pizza Hut franchise. Minority franchisees who meet certain criteria may be able to take advantage of a lending assistance program from Yum Brands. The program guarantees participants 25% of the principal of their franchised business loans, maxing out at $3 million per loan or franchisee.
- SBA loans: The Small Business Administration offers various programs to help people secure loans for small businesses, including franchises. It doesn’t directly lend money, but instead establishes guidelines for lenders and guarantees part of the loan. To qualify for an SBA loan, borrowers must be operating a for-profit business in the U.S. that meets certain size standards, have invested equity in their business, be unable to get financing from other lenders and meet other requirements. You may also need to put down 10-30% in collateral.
- Bank loans: Franchisees may be able to secure funding for a Pizza Hut location with a loan from a bank. The criteria for qualifying for a bank loan will vary by lender and type of loan. In general, you will need a good credit score, a down payment and collateral. You may also need to include financial statements, tax returns from previous years and proof of profitability for your franchise.
- Rollover as Business Startups (ROBS): If you’re struggling to secure traditional financing, you may be able to leverage a ROBS plan to draw money from your retirement accounts to cover the costs of your franchise without incurring penalties and tax obligations. Your franchise must be a C corporation and comply with certain legal guidelines if you wish to use the ROBS option. You must also offer your staff the ability to buy stock in your business at the time of the ROBS transaction.
Always read the fine print of any financing option before signing on the dotted line. Ask your lender any questions that come up so you can have a thorough understanding of what you’re getting into.
The bottom line
Pizza Hut’s requirements for franchisees mean that it’s primarily a good fit for someone who has a high net worth, large amount of liquid assets and experience owning or managing restaurants.
While we’ve provided plenty of specifics about how to finance a Pizza Hut franchise, there is further information that would be helpful to potential franchisees. This information was not readily available online, nor were we able to get responses from Pizza Hut representatives after reaching out multiple times.
- A copy of Pizza Hut’s most recent Franchise Disclosure Document (FDD)
- More details on training provided to franchisees
- Whether franchisees must commit to more than one restaurant
- Whether Pizza Hut has field offices throughout the U.S. to support franchisees
- Where Pizza Hut has available franchise opportunities
- The length of your agreement
Given the upfront costs of opening a franchise, potential franchisees should do research to determine if launching a Pizza Hut location is a smart business decision. You should also evaluate the pros and cons of all financing options to find the most cost-effective solution for your business.
Doing your homework before getting involved with a franchise can help you be prepared and avoid unpleasant surprises down the road.
The information in this article is accurate as of the date of publishing.