Is a Pizza Franchise a Good Investment?
Photo Credit: http://www.eightsolid.com
In June of 2003 I opened my first franchised pizza store here in Michigan. I went into partnership with my best friend from college. We had worked for 18 months planning our business, finding the perfect location, learning about the pizza business (him a lot more than me, as he went through the training program), etc. Our timing could not have been better! We opened with a bang, were having a lot of fun, and making some pretty good money too.
FAST FORWARD A COUPLE OF YEARS…Me and that same partner have now purchased a 2nd pizza store franchise from a struggling franchisee. We have went into partnership with his father on two sandwich shops and a “Starbucks type” coffee franchise…(but much cooler than Starbucks!) ANYWAYS…My partner lost interest in the pizza business. He was married now and the late hours sucked for him (besides, he was a morning person anyways…he loves to get up at 4:30 AM to go bass fishing, crazy, I know!) This love for the morning made the coffee business a perfect fit for him, but the bottom line is that the pizza stores were going down hill and he wanted out.
In 2005 my younger brother and I bought him out of the two pizza franchises, and my brother took over the day to day operations of the stores. He was just out of college, and had no trouble putting in the long and late hours of the pizza game. In less than a year, sales were up 20% at our original store, and 40% at the second store that we purchased. They were highly profitable again and life was good.
In 2007 we were approached by another franchisee who owned 3 pizza stores in Michigan. He wanted to buy our stores. He paid a lot less than we had originally wanted, but we eventually sold him the stores and walked away with a nice profit. This franchisee now had 5 pizza stores in Michigan. I don’t know the story, or what happened, but that guy who bought our pizza stores closed up all 5 of his stores about a year later. Which leads me back to the title of this “long winded” post…Is a Pizza Franchise a Good Investment? THE ANSWER, IT DEPENDS!
In the town I live in, we have seen about 10 pizza stores close over the past two years. I believe this is directly related to the $5 Little Caesars “Hot N Ready” Pizza. It is hard to compete with a OK pizza for $5 in Michigan, even if you are selling a GREAT pizza for only $10.00. Little Caesars has changed the industry here in Michigan for sure, and probably in other states too. So in the Mid West today, I would be very cautious about investing in a pizza franchise!
Depending on where you live though, population density, competition, average age, and number of households…a pizza business can be very fun and profitable. You REALLY have to do your homework though. There is TONS of data that needs to be sifted through in determining if any restaurant will be successful in a given town. I’ve developed a system to try to figure that out. If you are ever considering a franchised restaurant, zip me an e-mail, and I will try to help if I can!
Happy Easter! -B
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April 11th, 2009 at 1:15 pm
Any business is a good investment. As long as you have the time and enthusiasm to pursue it.
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April 11th, 2009 at 2:03 pm
Can I draw the conclusion that while the pizza business is generally recession proof, it isn’t competition proof?!
How much is Caesars making from a $5 pizza by your estimates?
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Brandon Reply:
April 11th, 2009 at 2:12 pm
Great conclusion Alex! I would venture that Caesars is making about $.75 per pizza, right to the bottom line. I’m guessing though, as I’ve never had any experience at all with LC
Brandons last blog post..Is a Pizza Franchise a Good Investment?
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Brandon Reply:
April 11th, 2009 at 2:14 pm
And Paul U, I really cannot agree with that statement. I’ve got relationships with people who gave their idea 110%, but it never took off and was probably going to fail from the start due to poor planning, wrong market, and bad timing!
Brandons last blog post..Is a Pizza Franchise a Good Investment?
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Alex Reply:
April 11th, 2009 at 2:20 pm
If that is the case I think they are killing the market AND themselves in the long run.
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Brandon Reply:
April 11th, 2009 at 2:33 pm
I agree! It is quite possible. They have tried to raise their price to $6 in the past and they have crashed and burned. Their customers went elsewhere and they had to bring their price back down to $5 bucks.
Brandons last blog post..Is a Pizza Franchise a Good Investment?
April 11th, 2009 at 2:47 pm
OK, I may not be the norm but I for one, would prefer to pay more for a decent pizza. I think you are being nice saying that there $5 pizza is “OK”. I live in a densely populated area and there are at least 12 pizza places within a 2 mile radius. I think in the 12 yrs I have lived here, I have only seen one go out of business.
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Almost Millionaire Reply:
April 11th, 2009 at 6:11 pm
Bob,
I agree completely. The place I go here in Mid-Michigan is Klavon’s Pizza. A large Pie is just over $20 with tax…but it is WELL worth it! Pizza is a great business, but you must have a great product if you want to charge more!
Almost Millionaires last blog post..Is a Pizza Franchise a Good Investment?
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April 11th, 2009 at 3:53 pm
The little ceasers model is a valid argument only in high density college towns or in lower income areas. Otherwise, a pizza franchise a good option that can be viable if you have the right marketing skills and ofcourse, a great product. The cost to manufacture a pizza is pennies compared to what its being sold for which = a great ROI.
I love pizza, so for me it would not be a great franchise only because I would eat the pies before they got sold haha…
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Almost Millionaire Reply:
April 11th, 2009 at 6:12 pm
Ha Aman! I thought that would happen to me too, but I worked so much that first year I lost 20 pounds even eating pizza twice a day.
Almost Millionaires last blog post..Is a Pizza Franchise a Good Investment?
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April 12th, 2009 at 12:02 am
You put in a lot of work at those stores, I remember when you first opened.
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April 12th, 2009 at 2:17 am
Hey, I looked at purchasing or opening a pizza restaurant about 2 years ago. A local pizza place was closing due to the owner being called up by the military. He was selling for the cost of the restaurant equipment new, which IMO was too much.
After going with a broker and looking at about 5 pizza places for sale, I came to the conclusion that most made very little money for the long hours. $25k-$30k a year was not uncommon for most of the owners and that was working 11am-12am and longer on weekends.
I guess I would agree with your conclusion. I’ve since gone the internet ecommerce route and its definitely alot less time consuming.
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Almost Millionaire Reply:
April 13th, 2009 at 12:24 pm
Looks like you really did you homework and probably made a great decision that has given you more freedom in life. That is great.
Almost Millionaires last blog post..Is a Pizza Franchise a Good Investment?
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April 12th, 2009 at 8:42 am
Happy Easter. It all depends on the market and the preferences of the people. If your franchise is around a chinese dominated area then fat chance of it working.
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Almost Millionaire Reply:
April 13th, 2009 at 12:25 pm
@MMO
I hope you had a great easter too! I agree with you, demographics, income, age, heritage…all these things are important considerations on what you open and where. Good insight.
Almost Millionaires last blog post..Is a Pizza Franchise a Good Investment?
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April 13th, 2009 at 5:56 am
It sure does depend; I depends on who is running it. You put someone in there who is enthusiastic and willing to do the hard work and there is every chance it will succeed. You stick in someone who decided he will have a bunch of young staff running it for him while he sits on his fat ass collecting the money, not managing it at all and there is every chance that it will lose money, perhaps even resulting in it closing down.
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Almost Millionaire Reply:
April 13th, 2009 at 12:27 pm
Wow Sire, you seem to know alot about the pizza business. I’ve seen alot of them come and go for that very reason. They hand the keys over to a young kid, train them a bit, and say, “See ya!” and wonder why things are not working out. Crazy!
Almost Millionaires last blog post..Is a Pizza Franchise a Good Investment?
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April 13th, 2009 at 1:01 pm
It’s not just the Pizza business, it is business in general. I’ve been in business most of my life and I’ve seen some good ones run to the ground because of the very reason I’ve stated above.
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April 14th, 2009 at 8:02 pm
I’ve seen a lot of pizza companies come and go in our area. Most aren’t franchises but individual’s stores. It’s definitely a tough business to break into and one where you really need to evaluate a lot of variables. I think a lot of it is location. We have four or five pizza places opening regularly in our are and they all close in about a year’s time.
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Yoga Poga Reply:
April 14th, 2009 at 8:05 pm
I think that in the pizza industry you really need a good solid pizza. Many places don’t taste any better than the average Dominos pizza. The ones that stay around seem to have a slightly different type of pie.
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Brandon Reply:
April 17th, 2009 at 3:04 am
That is crazy that they are closing within a year. Those folks probably invested 100K into each store. Money down the drain. What part of the country are you from?
Brandons last blog post..My Best Investment – 1st Quarter 2009
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Brandon Reply:
April 17th, 2009 at 3:05 am
I think that deep dish pizza is the future of the delivery industry!
Brandons last blog post..My Best Investment – 1st Quarter 2009
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Ghillie Guile Reply:
April 17th, 2009 at 8:40 am
Chicago stuffed pizza all the way!!
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April 14th, 2009 at 11:42 pm
oh boy, you should all see one of the latest yOuTube videos on Domino’s pizza… you wont’ want to go there ever again…. it really is a marketing hazard – those people should be fired for what they did. Just Youtube “Domino’s pizza” and you’ll eventually come across it.
MoneyEnergys last blog post..5 Money Lessons You Should Make Sure You Learn While Still in College or University
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Brandon Reply:
April 17th, 2009 at 3:09 am
I’ve seen those Domino’s video’s, it is disgusting and sad. In my 5 years in the pizza business I can honestly say we NEVER messed with people’s food like that. That is just sad, Parents need to teach their kids the golden rule now a days.
Brandons last blog post..My Best Investment – 1st Quarter 2009
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Jennifer @ Money Saver 101 Reply:
April 23rd, 2009 at 1:32 am
I totally agree. It makes me sick to think that someone might sneeze or stick their filthy fingers in food that my children are going to eat. No respect!
Jennifer @ Money Saver 101s last blog post..Economy vs. Commerce: Funny Financial Comic
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April 14th, 2009 at 11:46 pm
This thread has made me very hungry…. you know who else has great pizza? Whole Foods… seriously, try their hot bar. I think it’s their sauce that does it.
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Brandon Reply:
April 17th, 2009 at 3:10 am
I’ve had it once, and I was impressed. I was at a Whole Foods in Cleveland, OH. Very good stuff. When in Mid Michigan, check out Klavon’s Pizza! Amazing!
Brandons last blog post..My Best Investment – 1st Quarter 2009
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April 17th, 2009 at 8:33 am
Interesting stuff. I love to hear stories like yours. Great post, thanks for sharing.
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The Almost Millionaire Reply:
April 17th, 2009 at 9:13 pm
Thanks Mike, appreciate the comment!
The Almost Millionaires last blog post..My Best Investment – 1st Quarter 2009
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April 23rd, 2009 at 1:22 am
Little Caesars can offer these pizzas at rock bottom prices because they are able to buy more ingredients for less because of the amount of bulk they purchase. when you own a small business of your own, your cost for ingredients will be higher, and you’re probably using better quality ingredients, which are also more expensive.
Little Caesars can bring down the prices because they’re bigger, plain and simple.
What’s funny is that I didn’t even know Little Caesars was even around anymore. LOL
Jennifer @ Money Saver 101s last blog post..Economy vs. Commerce: Funny Financial Comic
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April 23rd, 2009 at 1:30 am
Those dominos folks were arrested and charged. LOL
http://www.youtube.com/watch?v=OhBmWxQpedI
http://www.youtube.com/watch?v=7l6AJ49xNSQ&feature=related
Jennifer @ Money Saver 101s last blog post..Economy vs. Commerce: Funny Financial Comic
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Almost Millionaire Reply:
April 23rd, 2009 at 3:58 am
I saw this, absolutly crazy. Makes me choose where I eat at VERY CAREFULLY!
Almost Millionaires last blog post..Blog Income Report
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September 25th, 2009 at 3:35 pm
I think one aspect you didn’t mention that may have been a huge factor is you made the pizza franchise a success. When people invest in a franchise they just expect the money in the literature to come spillling out, but it takes great management to make it work.
I think it’s a nod to your success as a manager.
Good story!
-Bill Spohnholtz
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September 26th, 2009 at 9:18 pm
Bill,
Thanks for the comments and input. I sure hope you are right in that I have good management abilites, because I still own several franchises and am looking for them to thrive!
Best,
TAM
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November 20th, 2009 at 4:56 pm
I think it was good of your friend to make these lifestyle changes and get out in order to live the life he wanted and that suited him better.
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March 8th, 2010 at 6:56 pm
Brandon,
I want to start a pizza parlor. I’ve been working part time 20 – 30 hours a week in a local pizza shop in order to learn the business. I have recently found an investor that is willing to back me, but I am having a tough time convincing him on a location that I fell in love with (I personally feel he lacks vision… or I’m just wrong).
I found a place that is 1,000 Sq ($1,500 per month) that is a block from the highways. The highways has 7 exits in a 2 mile span, all exits with tons of businesses so I think it will do great during lunch time. The road that the location is on has 2 lanes in each direction (also loaded with businesses), with an avg of 50k cars passing by each day. The location would be the first food place on that side of the road when people get off of the highway. It has a parking lot that fits 20 cars, has a small deck on the back. The location is one building from the corner, and there is access to a side street from the parking lot where delivery drivers and customers can take the side street to the street light, so it wont be hard for people to get out and go in either direction. And to close, there is a huge residential neighborhood behind the location.
With that said, I am having trouble convincing my investor that the location will do well. There is no parking in the front of the building, so anyone who wants to pickup food will have to take the driveway on the side of the building to the parking lot in the back, and the back of the building with the deck will be the actual entrance. The side of the building facing the road currently looks like (and pretty much is) a khaki sided house. I figured that if I put a sign out front that screams PIZZA! that people will pull in. And for what we lose on the odd design, we would make up in the ability to cover a large delivery radius because of our prime location, as well as the high volume of traffic.
Side question – how much is a typical utility bill for a pizza place that size with the normal double stack oven, fryers, walk in cooler/freezer combo, etc. ?
Your thoughts?
Thanks!
Dave
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March 23rd, 2010 at 3:09 pm
75 cents? you have to be joking. those $5 pizza’s put about $4 gross profit on the bottom line. their ingredients are the absolute cheapest stuff available.
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May 5th, 2010 at 3:06 pm
We are opening a papa johns lot of money up front but a real proven system. some stores gross 1 million most 700k
Costing us about 200k to start. Great product great marketing. I am counting on this for my retirment from healthcare.
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May 5th, 2010 at 3:29 pm
Good luck with your pizza place. For everyone opening one, I only go to places with good food! Make the pizza’s great and people will stand in line or park blocks away!
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May 5th, 2010 at 3:42 pm
Hi audrey,
We plan to be the best well marketed in town and most socially connected
I love PHX the weather is GREAT
You have a good looking sysytem yourself
Chas
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May 28th, 2010 at 5:47 pm
I completely agree with the depends statement. If you are the only one in town, GO FOR IT! If you have to compete for the customers from 10 other guys, it’s not worth it.
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June 9th, 2010 at 5:50 pm
Looking for most comprehensive report/review, from an unbiased source, on a Hungry Howie’s franchise.
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yoda Reply:
June 9th, 2010 at 5:51 pm
Please send follow-up response.
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