Huddle House Franchise Cost Recouped in 7 to 15 Years (2023)
Written by: Vetted Biz Franchise Research Team
Last Updated by
Ailen Faiad: January 24, 2023
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This article is based on its 2022 FDD.
Huddle House Franchise is a casual, family-style restaurant chain that has been serving breakfast, lunch, and dinner to customers across the United States since 1964. Founded in Decatur, Georgia, Huddle House has a long history of providing a warm and welcoming atmosphere for people to gather and enjoy a meal.
The first Huddle House restaurant was opened by John Sparks, who saw a need for a place where people could come together and enjoy a good meal at any time of day. Today, Huddle House has more than 400 locations across 25 states and is known for its comfort food, friendly service, and affordable prices.
Over the years, Huddle House has become a staple in many communities and is often where locals go to catch up with friends, watch a sports game, or just enjoy a hearty meal.
Contents
How Is Huddle House Franchise Positioned in the Food and Beverage Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 14.6 million people get employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
How Much Is a Huddle House Franchise?
The initial Huddle House Franchise Fee is $35,000. You have to pay this upfront fee when opening a Huddle House franchise.
Huddle House Franchise Cost
The estimated total investment necessary to begin the operation of a Huddle House Franchise ranges from $576,310 to $1,421,175. The following costs are part of the upfront costs included in the initial investment for a Huddle House. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Huddle House franchise in 2022.
| Type of expediture | Amount | To Whom Payment Is to Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $35,000 | $35,000 | HHI |
| Training fee and travel and living expenses while training | $23,000 | $40,000 | HHI (for training fee); Suppliers, Transportation, Food and Lodging |
| Real estate – Rent for First 3 months | $13,500 | $24,000 | Third-party Landlord |
| Improvements | $160,000 | $723,000 | Contractors |
| Equipment and seating | $170,000 | $300,000 | Vendors or HHI |
| Signs and decor | $32,000 | $75,000 | Vendors |
| Site Engineering / Civil plans | $8,000 | $18,000 | Vendors |
| Architectural / MEP Drawings | $7,500 | $20,000 | Vendors |
| Travel Expenses for Opening Guide Meeting | $0 | $750 | Suppliers of Transportation, Food and Lodging |
| Smallwares, Small equipment, opening inventory and uniforms | $45,000 | $56,000 | Vendors or HHI |
| POS System | $15,500 | $25,000 | Vendors |
| Back Office Software (first 3 months) | $375 | $600 | Vendors |
| Help Desk and Maintenance (first 3 months) | $735 | $825 | Vendors |
| Computer Related Security Services | $1,200 | $2,000 | Vendors |
| Grand Opening Promotion | $3,000 | $5,000 | Vendors |
| Miscellaneous Opening Costs | $4,000 | $6,000 | Vendors, HHI, Governmental Authorities, Utilities |
| Security Deposit | $7,500 | $15,000 | HHI |
| Additional funds – 3 months | $50,000 | $75,000 | Employees and Vendors |
| Totals | $576,310 | $1,421,175 | |
Ongoing Fees
Royalty: 4.75% of the Net Sales
Contribution to Advertising Fund: 3.0% of the Net Sales
Local Marketing: 1.0% of the Net Sale
How Much Do Huddle House Franchise Owners Make?
Huddle House Franchised Restaurants – Calendar Year 2021 Net Sales
| Net Sales | Average Net Sales per Unit | High Net Sales | Median Net Sales | Low Net Sales | Total # of Units (in Net Sales Range) | Total # / % of Units Above Average |
|---|---|---|---|---|---|---|
| >$1,113,500 | $1,349,644 | $1,903,695 | $1,272,037 | $1,113,536 | 27 | 11 / 41% |
| $723,800 to $1,112,700 | $885,590 | $1,099,488 | $878,194 | $734,413 | 88 | 41 /47% |
| $413,000 to $723,400 | $571,562 | $723,312 | $585,088 | $413,207 | 93 | 49 / 53% |
| $402,000 | $315,990 | $401,961 | $339,349 | $200,220 | 26 | 14 / 54% |
| Total Franchise Restaurants | $751,040 | $1,903,695 | $712,428 | $200,220 | 234 | 111 / 47% |
2021 Huddle House Median Franchise Sales: $712,428
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $998,742 | 10% | $71,242 | 15.5 years |
| 15% | $106,864 | 11 years | |
| 20% | $172,486 | 7.5 years |
Based on the median sales provided by Huddle House’s franchise locations, at an average of a 15% profit margin it will take around 11 years to recoup your investment. This is longer than other franchise opportunities.
You may not get a 15% profit margin, which would elongate getting a return on your investment.
Many factors affect the sales, costs, and expenses of your Franchised Store, such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace; the presence of other Food and Beverage stores; and the extent of market penetration and brand awareness that Huddle House stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Huddle House franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
Under $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.55
When you go to sell a Huddle House franchise based on the median multiple of .55 and net sales of $712,428, it would sell for $391,835. This is significantly lower than the midpoint investment of $998,742.
Here is an example of a Huddle House franchise for sale:
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
Huddle House (Franchisor) Income Statement Key Insights
Huddle House, Inc and Subsidiary Consolidated Statements of Operations
| May 3, 2022 | April 27, 2021 | April 28, 2020 | |
|---|---|---|---|
| Revenues | |||
| Revenues | $106,127 | $88,937 | $99,201 |
| Marketing and revenues | $5,603 | $4,827 | – |
| Total revenues | $111,730 | $93,764 | $99,201 |
| Costs and expenses: | |||
| Cost of food, supplies, rental and equipment sales | $51,642 | $42,023 | $49,505 |
| Selling, general, and administrative expenses | $42,129 | $37,941 | $41,494 |
| Marketing fund expenses | $6,702 | $5,787 | – |
| Loss (gain) on disposal of land, property and equipment | $302 | $2,724 | $(165) |
| Depreciation and amortization | $12,919 | $12,906 | $12,640 |
| Total cost and expenses | $113,694 | $101,381 | $103,474 |
| Operating loss | $(1,964) | $(7,617) | $(4,273) |
| Other income (expense) | |||
| Interest income | $3 | $3 | $6 |
| Interest expense | $(4,265) | $(5,426) | $(7,486) |
| Loss before provision for income taxes | $(6,226) | $(13,040) | $(11,753) |
| Benefit for income taxes | $397 | $1,924 | $2,134 |
| Net loss | $(5,829) | $(11,116) | $(9,619) |
Huddle House has a consistent loss for the franchisor with losses of $5 million, $11 million, and $9 million in the last three years.
How Many Huddle House Units Have Opened and Closed?
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 300 | 285 | -15 |
| 2020 | 285 | 260 | -25 | |
| 2021 | 260 | 253 | -7 | |
| Company-Owned | 2019 | 42 | 48 | +6 |
| 2020 | 48 | 53 | +5 | |
| 2021 | 53 | 51 | -2 | |
| Total Outlets | 2019 | 342 | 333 | -9 |
| 2020 | 333 | 313 | -20 | |
| 2021 | 313 | 304 | -9 |
Over the last three years, the company has been in decline. In the previous three years, franchises have closed at a rate of 13 units a year. This is an indicator that these stores may not be performing well. Or their franchise term is up and they are not renewing it.
Conclusion
In conclusion, owning a Huddle House franchise can be a lucrative opportunity, but it requires a significant initial investment and has a long payback period. The success of a Huddle House franchise depends on various factors such as location, management, and competition in the market. It is important to carefully consider the costs and potential profits before deciding to invest in a Huddle House franchise.
Additionally, it may be more financially beneficial to own multiple Huddle House franchises rather than just one, as this can attract the attention of private equity firms and potentially result in higher profits. Overall, it is important to thoroughly research and consider all aspects of the Huddle House franchise opportunity before making a decision.
While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food and Beverage industry.
