MOD Pizza Franchise Cost & Fees Worth It? (2024)
This article is based on the video featured above, originally recorded for Vetted Biz Youtube Channel.
MOD Pizza Restaurants feature “made on demand” artisan pizzas, salads, desserts, beverages, and other menu items in a unique atmosphere. Also, MOD Pizza Restaurants offer a selection of wines and beers. The MOD Pizza Restaurant concept was founded in February 2008. It began offering franchises for MOD Pizza Restaurants in 2013. In this article, you will learn in depth about MOD Pizza franchise cost, financial performance, and unique competitive edge in the fast-casual pizza industry.
Listen to this article
Who Owns MOD Pizza?
Mr. Svenson co-founded the MOD Pizza concept in February 2008. In October 2012, Mr. Svenson became the CEO and a Manager of MOD Pizza, the franchise entity, since its formation in July 2013.
AT THE END OF THE YEAR IN 2020, THERE WERE 490 TOTAL OUTLETS IN THE UNITED STATES: 408 WERE COMPANY-OWNED AND 91 WERE FRANCHISED LOCATIONS.
MOD Pizza competes with other local fast-casual pizza restaurants. However, MOD Pizza does have a competitive edge over big-name companies in terms of the ability it has to sell alcoholic beverages. Its main national competitors are big brand companies such as Pizza Hut, Blaze Pizza, and Domino’s.
MOD Pizza Plans to go Public
MOD Pizza Restaurants have had plans to go public since 2021. Although the Covid-19 pandemic slowed down the economy in 2020, MOD Pizza Restaurants were adapting to the new changes in the economy. They had a positive net unit growth of 22 new franchises in 2020, but that was still less than their net unit growth for 2019 which was 64 new restaurants. To adapt to the pandemic while keeping the business running, MOD Pizza Restaurants started relying more on delivery and digital platforms to increase their revenues. For example, they started expanding on digital platforms such as Uber Eats and Postmates so their customers can order from them safely during the pandemic.
As MOD Pizza Restaurants continued to grow during the pandemic, they started planning on going public. They have submitted a confidential draft registration statement on Form S-1 to the SEC. MOD Pizza Restaurants are expected to IPO after the review process by the SEC.
How Much Does a Mod Pizza Franchise Cost?
To answer the question of how much is a MOD Pizza Franchise let’s start by taking a look a the initial franchise fee. The initial franchise fee necessary to open a single MOD Pizza Restaurant is $30,000.
MOD Pizza Franchise Cost
The total initial investment necessary to begin the operation of a MOD Pizza Franchise ranges from $714,000 to $1,092,000. Below is a breakdown of all the MOD Pizza franchise costs involved in the calculation of the initial investment cost of a MOD Pizza franchise.
| Type of Expenditure | Amount (in USD) | To Whom Payment Is to Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $30,000 | $30,000 | MOD Pizza |
| Leasehold Improvements | $303,000 | $478,000 | Suppliers |
| Training Costs | $5,000 | $18,000 | Employees, Airlines, Hotels, Restaurants and MOD Pizza |
| Furniture, Fixtures, Suppliers, Décor and Equipment | $258,000 | $338,000 | Suppliers or Leasing Companies |
| Site Design, Architectural and Engineering Fees | $28,000 | $51,000 | MOD Pizza and Suppliers |
| Signane | $28,000 | $51,000 | Suppliers |
| Point-of-Sale and Computer System | $5,000 | $11,000 | Suppliers |
| Beer and Wine License Costs | $2,000 | $15,000 | Governmental Agencies and Professional Services |
| Miscellaneous | $15,000 | $40,000 | Landlord, Utilities, Government Agencies, Attorneys, Accountants and Other Professionals |
| Grand Opening Marketing | $10,000 | $10,000 | Suppliers |
| Additional Funds – 3 Months (These figures have not been offset by operating revenues) | $30,000 | $50,000 | MOD Pizza, Landlord, Suppliers and Utilities |
| Total | $714,000 | $1,092,000 | |
Ongoing MOD Pizza Franchise Cost and Fees
Continuing Fee (Royalty): 5% of store’s weekly revenue
Marketing Fee: 2% of store’s weekly revenue
Local Marketing: Minimum of 2% of revenues (1.5% of aggregate revenues if you operate more than one MOD Pizza restaurant)
How Much Do MOD Pizza Owners Make?
MOD Pizza does not make any financial performance representations about a franchisee’s future or past financial performance of both company-owned and franchised outlets. However, if you are purchasing an existing outlet, the franchisor or the selling franchisee may provide you with the actual records of that outlet.
We can guesstimate sales figures from the MOD Pizza revenue through our analysis of the franchisor income statement since we know what percentage the royalties take of the gross sales.
2019 MOD Pizza Sales and Breakeven Point
Royalty Fee: 5% of revenues(sales)
In 2019 MOD Pizza royalty revenues were $4,916,000
Estimated Total Franchise Sales: $98.3 million
And Estimated Average Franchise Revenue: $1,080,439
Using the estimated average franchise revenue and the midpoint investment, we can predict the time it will take you to recoup your initial investment as shown in the table below:
| Initial Investment (Midpoint) | %Profit margin of average franchise sales | Estimated Profits per annum | Time to recoup investment (including 2.5 years for scaling up) |
|---|---|---|---|
| $903,000 | 10% 15% 20% | $108,043 $162,065 $216,087 | 10.5 years 8 years 6.5 years |
2020 MOD Pizza Sales and Breakeven Point:
In 2020 MOD Pizza royalty revenues were $3,599,000
Estimated Total Franchise Sales: $71.98 million
And Estimated Average Franchise Revenue: $877,804
| Initial Investment (Midpoint) | %Profit margin of average franchise sales | Estimated Profits per annum | Time to recoup investment (including 2.5 years for scaling up) |
|---|---|---|---|
| $903,000 | 10% 15% 20% | $87,780 $131,670 $175,560 | 12.5 years 9 years 7.5 years |
Is the MOD Pizza Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Marco’s Pizza, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the pizza franchise industry’s selling price multiples to determine Marco’s Pizza’s resale value.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales – 0.31
$1 Million – $5 Million Net Sales
- Estimated Selling Price = Net Sales – 0.34
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales – 0.86
When you go to sell a MOD Pizza franchise based on the median multiple of 0.31 and net sales averaging $979,121 between 2019 and 2020, it would sell for $303,527. This is almost a third of the midpoint initial investment of $903,000 which is not a great resale value.
Normally, one is encouraged to own multiple franchises to realize greater profits from a resale. In the case of the MOD Pizza franchise, owning multiple outlets will not guarantee you a profit from a resale. This is because the initial investment cost is very close to the annual average net sales from a MOD Pizza franchise. From our analysis, even if you own 50 franchises you are not guaranteed to make money from a resale. Hence, owning a MOD Pizza franchise should be a long-term investment.
MOD Super-Fast Pizza Franchising, LLC Income Statement
Statement of Income
| (in thousands) | Years ended in | ||
|---|---|---|---|
| December 27, 2020 | December 29, 2019 | December 30, 2018 | |
| Revenues: | |||
| National marketing fee revenue | $8,775 | $8,359 | $5,773 |
| Franchise fee revenue | 576 | 1,115 | 328 |
| Royalty revenue | 3,599 | 4,916 | 3,834 |
| Total revenue | 12,950 | 14,390 | 9,935 |
| Expenses: | |||
| Sales and marketing expenses | 6,881 | 8,044 | 5,191 |
| General and administrative expenses | 1,187 | 1,712 | 1,486 |
| Total expenses | 8,067 | 9,756 | 6,677 |
| Net income: | $4,882 | $4,634 | $3,258 |
Income Statement Key Insights
To the franchisor, MOD Pizza is a profitable business. In 2020, the company had a net profit of $4.9 million which brought the average net profit of the last three years to about $4.2 million.
The net profit has also been increasing since 2018 which indicates that the business is performing well despite the 2020 economic downturn brought by the Covid19 pandemic.
MOD Super-Fast Pizza Franchising, LLC Cashflow Statement
| (in thousands) | Years ended December 27, 2020, December 29, 2019, and December 30, 2018 | ||
|---|---|---|---|
| Operating activities: | |||
| Net income | $4,882 | $4,634 | $3,258 |
| Adjustments to reconcile net income to net cash provided (used in) operating: activities: | |||
| Euity-based compensation expense | 46 | 98 | 185 |
| Changes in operating assets and liabilities: | |||
| Accounts receivable | (271) | 95 | (335) |
| Due from affiliates | (5,158) | (4,912) | (4,734) |
| Prepaid expenses and other current assets | 10 | (39) | (14) |
| Accounts payable | 321 | 115 | (56) |
| Accrued expenses and other current liabilities | (15) | (512) | 251 |
| Due to affiliates | 737 | 1,190 | (6) |
| Deferred revenue | (193) | (925) | 262 |
| Net cash provided (used) in operating activities | 359 | (256) | (1,189) |
| Net increase (decrease) in cash | 359 | (256) | (1,189) |
| Cash at the beginning of the year | 241 | 497 | 1,686 |
| Cash at the end of the year | $600 | $241 | $497 |
Cashflow Statement Key Insights
The cash flow statement indicates that the company has healthy financials as it retained cash at the end of 2020, 2019, and 2018. The largest amount of cash that was retained was $600,000 in 2020.
How Many Outlets Have Opened and Closed?
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 72 | 93 | 21 |
| 2019 | 93 | 91 | -2 | |
| 2020 | 91 | 82 | -9 | |
| Company-Owned | 2018 | 225 | 302 | 77 |
| 2019 | 302 | 376 | 74 | |
| 2020 | 376 | 408 | 32 | |
| Total Outlets | 2018 | 297 | 395 | 98 |
| 2019 | 395 | 467 | 72 | |
| 2020 | 467 | 490 | 23 |
MOD Pizza has more company-owned outlets than franchised outlets.
At the end of 2020, there were a total of 490 outlets: 408 company-owned and 82 franchised.
In 2018, 21 new franchised outlets were opened unlike in 2019 and 2020 which saw a net negative change of 2 and 9 respectively.
Competition
MOD Pizza competes with other local fast-casual pizza restaurants. However, MOD Pizza does have a competitive edge over big-name companies in terms of the ability it has to sell alcoholic beverages. Its main national competitors are big brand companies such as Pizza Hut, Blaze Pizza, and Domino’s.
Conclusion
This franchise has a good business model and is trying to execute in the fast-casual space. Their model also has the added benefit of serving alcohol to improve average ticket sales and reach a broader audience.
While this may be the business for you, make sure to also check out other businesses offered on Vetted Biz and in Food and Beverage Industry.
