Little Caesars Franchise Cost Too High (2023)
This article is based on its 2022 FDD.
Little Caesars is an American multinational pizza chain. It is the third-largest chain in the US after Domino’s and Pizza Hut. Little Caesar’s has 4100+ locations across the USA. Internationally, Little Caesars has locations in Asia, the Middle East, Canada, Latin America, and the Caribbean. Based in Detroit, MI, the pizza chain is held by Ilitch Holdings.
The chain was founded in 1959, by Mike Ilitch and his wife Marian Ilitch. Their first location was in a strip mall in Garden City, Michigan, a suburb of Detroit, and named “Little Caesar’s Pizza Treat”. The first franchised location opened in 1962 in Warren, MI. The company is well-known for its catchphrase "Pizza! Pizza!", introduced in 1979. It alludes to two pizzas at Little Caesars being offered for the comparable price of a single pizza from competitors. Since the old days, Little Caesars’ business model has shifted to focus more on carryout. In 1998, Little Caesars filled what was the largest pizza order of the time, 13,386 pizzas for the VF Corporation of Greensboro, NC.
It is led by David Scrivano in the capacity of President and CEO.
Listen to this article
How Is Little Caesars Franchise Positioned in the Pizza Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people get employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and there's an expectation that it will 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.
Little Caesars competes in the Pizza market against big brand companies such as Domino’s and Pizza Hut. Little Caesars franchisees also compete against other nearby Little Caesars locations.
If a pizza shop is doing in excess of $450,000 annually, the multiples will increase. Social media and reviews are important factors and can affect the value of goodwill of a pizzeria.
A new pizzeria owner needs to have knowledge of the regular restaurant stuff like delivery choices, packing of delivery food to show clean and safe transport, and needs to embrace new technology. The bigger the part of the community the place is, the higher the price received by it—community pizzerias are really well-liked. When purchasing an existing pizza shop, it is important to go through all purchases and expenses of the store. During due diligence, all of these expenses will help to project future results. Pizza experience is important for a prospective pizza shop owner. Experience, along with marketing, are important skills to have in this business. A buyer should expect to work the business. Owners that run pizzerias are more successful than those who run absentee.
Diversifying with some other pasta and sandwich items helps the overall business as it's hard to get regular patrons to eat pizza on a more than weekly cycle. With other offerings, you will increase the regular customer returns.
How Much Is a Little Caesars Franchise?
The initial Little Caesars Franchise Fee is $20,000. You have to pay this upfront fee when opening a Little Caesars franchise.
Little Caesars Franchise Cost
The estimated total investment necessary to begin the operation of a Little Caesars Franchise ranges from $378,700 to $1,695,500. The following costs are part of the upfront costs included in the initial investment for a Little Caesars. 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 Little Caesars franchise in 2022.
ESTIMATED INITIAL INVESTMENT
|Type of Expenditure||Amount||To Whom Payment Is to Be Made|
|Initial Franchise Fee||$20,000||Us|
|Rent||$1,500 to $7,000||Lessor|
|Leasehold Improvements||$50,000 to $1,000,000||Suppliers|
|Fixtures,Equipment, and Signage||$200,000 to $400,000||Blue Line and Suppliers|
|Grand Opening Advertising||$12,000 to $20,000||Suppliers and Media|
|Training Expenses||$12,000 to $16,500||Hotels, Airlines, online subscriptions, licensing fees, etc.|
|Start-up Inventory and Supplies||$63,000 to $154,000||Blue Line and Suppliers|
|Insurance||$1,200 to $2,000||Insurers|
|Utility Expenses||$1,000 to $9,000||Utilities|
|Licenses and Permits||$1,000 to $20,000||Governments|
|Additional Funds - 3 months||$17,000 to $47,000||Various|
|TOTAL||$378,700 to $1,695,500|
This is a slightly bigger investment when compared to Domino’s locations. The average investment in the food and beverage industry is around $466,000 and this is more than double that. However, it can pay off as we explain below.
Little Caesars Franchise Requirements
Little Caesar claims that the initial required investment is going to start in the ballpark of $379,000 with a minimum required net worth of $350,000 of which $150,000 should be in liquid assets.
Owning a Little Caesars Franchise Requires Ongoing Fees
Royalty: The greater of 6% of Gross Sales for each one-week period or $100 for each one week period
Advertising Fee: Up to 7% of Gross Sales
Caesar Vision system annual support fee: Up to $3,000 per year per Restaurant; currently $2,600 per year per Restaurant
Digital transactions fee: Up to $0.36 per transaction
Delivery fees – orders via Little Caesars app or website: Delivery fee - $2.99, Service fee - 11% of food and beverage order (maximum $3.50), Small order fee - $2.00, Late-to-Portal fee - $0.50 per late order
The royalty and advertising fees are slightly higher than industry standards for the Food and Beverage Industry.
How Much Do Little Caesars Franchise Owners Make?
Little Caesars does not disclose any financials regarding franchises but we estimate that the median franchise has an Average Unit Volume (AUV) of $940,000 in 2020 and $899,000 in 2019.
Based on the median sales estimated for Little Caesars franchise locations, at an average of a 15% profit margin, it will take around 9.75 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 Pizza stores; the extent of market penetration and brand awareness that Little Caesars stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Little Caesars Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Little Caesars' 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.
When you go to sell a Little Caesars franchise based on the median multiple of .59 and 2021 AUV of $940,000, it would sell for $554,600. This is significantly lower than the midpoint investment of $1,037,000.
However, as an owner of multiple Little Caesars franchised locations, you do have the ability to minimize loss. Pizzeria owners with over $5 million in sales have a median multiple of 0.86. So, if you had 10 Little Caesars' franchises, amounting to $9,400,000 in sales, selling your multiunit franchise system would amount to $8,084,000. This is also not going to recover your initial investment of $10,370,000. This might be a big reason for the decline of Little Caesars' franchised locations – it just isn't viable anymore.
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.
Little Caesars - 2 units - Highly Profitable
|Asking Price||$625,000||Cash Flow:||$180,000|
EBITDA multiples for Little Caesars’ franchises are in the range of 2 - 6.5x with 3x being most common. Most deals close for around 94% of their asking price.
Pizza Franchise for Sale Little Caesar's in Cleveland
|Elyria, OH (Lorain County)|
|Asking Price:||$275,000||Cash Flow:||$90,896|
Little Caesars Pizza - Owner says sell priced to sell
|Nassau County, NY|
|Asking Price:||$169,000||Cash Flow:||$75,000|
|EBITDA:||N/A||Rent:||$3,500 per Month|
Little Caesars Pizza Restaurant
|Sacramento County, CA|
|Asking Price:||$329,000||Cash Flow:||$48,589|
|EBITDA:||N/A||Rent:||$2,930 per Month|
Little Caesars (Franchisor) Income Statement Key Insights:
|Years ended in December 30|
|DUE FROM PARENT||$5,010,900||$5,010,900||$5,010,900|
|LIABILITIES AND SHAREHOLDER's EQUITY|
|SHAREHOLDER's EQUITY - Contributed capital||$5,010,900||$5,010,900||$5,010,900|
Little Caesars is a very profitable business for the franchisor with retained earnings of $ million in 20. Compared to $ million in 2020, they saw an increase of % from 2020 to 2021. This is a good indication of high growth as a company overall.
How Many Little Caesars Units Have Opened and Closed?
|Outlet Type||Year||Outlets at the Start of the Year||Outlets at the End of the Year||Net Change|
Over the last three years, the company has been in decline. Both franchising units and company-operated stores have decreased. Over the last three years, franchises have closed at a rate of 35 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.
What Are Alternatives to a Little Caesars Franchise?
Let’s look at some alternatives to a Little Caesars Franchise available:
- Marco’s Pizza franchise is an authentic Italian restaurant chain that serves chicken wings, pizza, cheesy bread, sandwiches, desserts, salads, and beverages. The Marco’s Pizza Italian chain got started by an Italian immigrant named Pasquale also known as “Pat” Giammarco in 1978. The first store opened in Oregon, Ohio on Starr Avenue. Pasquale was born in Sulmona, Italy but grew up in the U.S. in Michigan. He worked in his family’s pizzeria and his father even made the famous sauce that is in all of Marco’s Pizza locations.
The Co-CEO and president is Tony Libardi, who has held these titles since January 2021. Stephen Seyferth is the other CEO who has held this position since December 2019. The Vice President and CFO are Jeffrey Rager from February 2019.
The financials seem positive, and Marco’s Pizza franchise is not a failing business. From the data, your franchise will most likely stay in business, and that’s one of the most important factors in owning a future business.
- Domino’s is an American multinational pizza and fast-food chain founded in 1960. President David Brandon and CEO Richard Allison are currently leading the company. Its headquarters are in Ann Arbor, MI. Domino’s has stores in 92 countries which number more than 18,300. It has over 1,200 stores in the United Kingdom, 1,500+ in India, and almost 6,600 in the US.
In 1960, Tom Monaghan and his brother, James, took over the operation of DomiNick's, an existing location of a small pizza restaurant chain. James quit the business after some time to focus on his postman job and sold his half to his brother. By 1965, Tom had purchased two additional pizzerias for a total of three locations in the same county. Monaghan wanted the stores to share the same branding, but the original owner forbade him from using the DomiNick's name. Monaghan officially renamed the business Domino's Pizza, Inc. in 1965 when em employee suggested that would be a nice name for the chain.
Domino's offers people the opportunity to be a part of a business that has good returns and isn’t likely to die soon. However, Domino’s has a strict requirement of having been with the company in a certain role or higher for a year, which you need to fulfill in order to own a Domino’s franchise.
Be sure to talk to at least 3 to 5 other Domino’s franchise owners to get an idea of the business and what the experience of owning a franchise is like.
- Papa John’s is a quick-service restaurant devoted primarily to the sale of pizza and other related food products. The majority of these restaurants are franchised, and operators of Papa John’s are considered independent contractors. Bam Inc. originally founded it in 1984, an Indiana corporation that operated a restaurant and tavern. In 1985, it was acquired by Schnatter & Ehringer Inc. In 1989, Schnatter & Ehringer Inc. changed their name to Papa John’s International, Inc., but is referred to as PJ Indiana in the FDD. By 1991, PJ Indiana was merged with Papa John’s, changing their corporate location from Indiana to Delaware. As a result of the merger, PJ Indiana ceased to exist.
The toll of the 2018 controversy has been significant on franchisees, according to one article published in 2019 by Restaurant Business. So, the pizza market is extremely competitive, with the determining factor for consumer loyalty being price. If franchisees are already struggling due to a low volume of sales, offering discounted prices to compete with other names in the industry could be even more damaging.
However, Papa John’s in 2019 instituted new management by naming Robert Lynch CEO and Jim Norberg Chief of Restaurant Operation. Its new management will need a couple of years to see if they can gain customer and franchisee loyalty back.
- Pizza Hut franchise opened its first store in Wichita, Kansas in 1958. After its founders, brothers Dan and Frank Carney, borrowed $600 from their mother to finance their pizza dreams. Because their restaurant’s sign only had room for eight letters, the Carney brothers decided to name their concept “Pizza Hut”. A restaurant concept that created food they proudly served and delivered at a fast pace. Franchising began one year later. By 1971 Pizza Hut became the No.1 pizza restaurant chain in the world in both sales and number of restaurants.
Investing in a Pizza Hut franchise is an interesting opportunity, especially post COVID-19 pandemic. The entry investment of $367,000 is suitable for individuals looking to make their way into the QSR industry. The prospects for growth and success within the industry and the Pizza Hut brand itself are extensive. Several markets continue to be available as they move forward with growing their presence across the country. If you have extensive management experience and plan to open 5 to 10+ Pizza Huts, it is worth evaluating as a franchise! Opening just one is hard to justify, given the resale value and lengthy payback period.
Little Caesars offers people the opportunity to be a part of a business that has good returns and isn’t likely to die soon. However, the high investment costs are not worth it, and selling your entire franchise network will not recover your initial investment, even with a network of 10 stores.
As such, we do suggest alternatives to the Little Caesars franchise above.