Pizza Hut Franchise Cost & Profit for 2024

This article is based on the video featured above, originally recorded for Vetted Biz Youtube Channel.

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.

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Who Owns Pizza Hut

Today, Pizza Hut, a subsidiary of Yum! Brands, has over 6,000 franchised stores in the US and another 11,000 in international markets. The Pizza Hut headquarters is located in Plano, Texas, and is run by its CEO Artie Starrs. Artie previously served as President and Chief Financial Officer of Pizza Hut U.S. Pizza Hut, the largest restaurant chain in the world specializing in the sale of ready-to-eat pizza, operates in the delivery, carryout, and casual dining around the world.

What Is the Pizza Hut Franchise Cost?

The total investment amount to establish a Pizza Hut franchise ranges from $367,000 to $2,063,500, depending on the type of operation of the restaurant. This excludes the real property but includes the $47,500 to $69,000 in fees that must be paid to the franchisor. The franchisees should pay an initial franchise fee of $25,000 for each System Restaurant.

The franchisees are expected to use the designated computer system, which costs approximately $15,000 to $30,000 to set up. Once the store’s operations begin, franchisees are expected to pay the company a royalty fee of 6% on gross sales and a marketing fee of 4.75% in exchange for the marketing services provided by the franchisor.

Pizza Hut is particularly looking for experienced candidates, who are open to working on the daily operations of the franchise. And, also, who have enough capital to commit to opening at least two locations throughout their time as a franchisee.

That said, the minimum net worth required to own a Pizza Hut franchise is $700,000 and the applicant must have liquid assets totaling at least $350,000.

How Much Does a Pizza Hut Franchise Make?

Dine-in and Carryout Pizza Huts are profitable and growing business models. In the fiscal year 2020, the average gross sales were $960,470, while the average gross sales in the fiscal year 2021 were $1,046,429.

Dine-in/Red Roof Pizza Huts (“RBD”)

In the fiscal year of 2020, the average gross sales for dine-in/red roof Pizza Huts ranged from $221,848 to $2,922,768. 43.6% of restaurants in this category exceeded the average of $973,080.

In the fiscal year of 2021, the average gross sales ranged from $219,847 to $2,996,833, where 44.8% of restaurants exceeded the average of $1,075,836. Although there was a decrease in the number of stores in this category, the average gross sales increased by 10.6%.

Based on the average sales provided by Dine-in Pizza Hut’s franchise locations, at an average of a 15% profit margin it will take around 9 years to recoup your investment. This is longer than most franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment. The time to recoup investments incorporates roughly a 2 year period to scale up the restaurant. This includes finding the location, building the restaurant, passing break even, and then reaching significant income.

Delco Delivery/Carry-out Restaurants

In the fiscal year of 2020, the average gross sales for Delco Delivery and Carry-out Pizza Huts ranged from $262,711 to $3,058,878, where 43.6% of restaurants in this category exceeded the average of $950,058.

In the fiscal year of 2021, the average gross sales ranged from $218,514 to $2,993,149, where 43.5% of restaurants exceeded the average of $1,022,827. With an increase in the number of stores, the average gross sales for this category increased by 7.7%.

Based on the average sales provided by Delco Delivery/Carryout Pizza Hut’s franchise locations, at an average of a 15% profit margin it will take around 4 years to recoup your investment. However, you may not get a 15% profit margin which would elongate getting a return on your investment. The time to recoup investments incorporates roughly a 2 year period to scale up the restaurant. This includes finding the location, building the restaurant, passing break even, and then reaching significant income. Compared to the Dine-in Pizza Hut, the Delco Delivery/Carryout Pizza Hut restaurants require less time to recoup the investment with the less initial investment.

Is the Pizza Hut Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Pizza Hut 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 like Domino’s and Papa John’s Pizza where more transaction data is available.

$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 Pizza Hut carry-out franchise based on the median multiple of .34 and net sales of $1,022,000 it would sell for $347,480. This is significantly lower than the midpoint investment of $652,900.

However, as an owner of multiple Pizza Hut franchises, you do have the ability to make a profit. Pizza franchise owners with over $5 million in sales have a median multiple of .86. If you had 10 Pizza Hut franchises this would be $10.2 million in sales.

Therefore, selling your multi-unit franchise system would amount to $8.8 million. 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. If the seller averaged just $500,000 to open each carryout Pizza Hut, he/ she could net over $3 million when the restaurants are sold!

10%+ Pizza Hut Locations Closed During Covid-19 Pandemic

When evaluating a Pizza Hut franchise’s potential for growth one does not need to go beyond Quick Service Restaurant numbers to better understand the prospect for success of the opportunity at hand. The fast-food industry generated $278.6 billion in revenues in 2021. And the industry has since been expected to have an annual growth of 2.9% in the following subsequent years. Pizza Hut itself was ranked one of the most valuable fast food brands worldwide. And in 2021 was ranked number 13 in QSR Magazine’s top 50.

Looking at the franchise’s internal performance, although limited data was made available on the financial status of the company’s franchisees, it was found that only 28 franchises ceased operations in 2021 – an insignificant value when contrasted with the total number of franchises under Pizza Hut franchise system. Additionally, there were no company-owned restaurants closed in 2021. Although there was an increasing number of stores closed in 2020 during the COVID-19 pandemic, Pizza Hut managed to offset the negative impacts into 2021. Moving forward, Pizza Hut is looking to establish new units, particularly in the Northeast region of the country, including states such as New York, Massachusetts, and New Hampshire.

YUM! Brands, Parent Company of Many Famous Fast Food Brands

Being the parent company of multiple well-known fast-food brands, including KFC, Taco Bell, Pizza Hut, and The Habit Burger Grill, YUM! Brands is the world’s largest restaurant company with a unified global system of more than 53,000 restaurants in over 155 countries. In 2021, YUM! Brands opened nearly 4,200 restaurants in over 110 countries, resulting in 3,057 net new units. As more people deployed the internet than ever during the COVID-19 pandemic, its digital sales reached new heights hitting $22 billion in 2021.

As of 2021, 98% of YUM! Brands’ units are operated by independent franchisees.  99% of Pizza Huts are franchised with 18,381 units around the world.

China was one of the largest markets for YUM!, spun out as a separate publicly-traded company under the name of Yum China Holdings, Inc. As their largest master franchisee, Yum China pays the YUM! Brands a continuing fee of 3% on system sales of the stores in mainland China.

YUM! Brands trades under the symbol YUM and is listed on the NYSE. Publicly traded on September 19, 1997, at $5.44 per share, YUM! Brands has experienced exponential growth to $115.76 per share as of May 2, 2022. Currently, YUM! has a total market capitalization of $33.4 billion. However, it is slightly volatile with a beta of 1.10. YUM has a dividend yield of 1.95%, paying its shareholders $0.50 per share in 2021, and expected to increase to $0.57 in 2022.

YUM! Brands’ Results of Operations

By comparing the five 2021 performance metrics across the three major YUM! Brands, Pizza Hut is the second in core operating profit and GAAP Operating Profit. Although there were fewer system sales, the Pizza Hut division was able to control its costs and reach a higher profit level.

Looking at the system sales breakdown by company and franchise sales, we can see that the sales from Pizza Hut are heavily dependent on franchisees, compared to other divisions. Although the franchise sales slightly decreased in 2020, Pizza Hut promptly adjusted with appropriate measures and reached a higher sales record than in 2019.

Pizza Hut Division

The Pizza Hut Division has 18,381 units, 64% of which are located outside of the U.S. The alliance with Food Delivery Brands, the master franchisee of Pizza Hut in Latin America and portions of Europe, has continued to have positive impacts.

In 2021, the decrease in company sales and company-owned stores was driven by the refranchising of stores in the United Kingdom, partially offset by company same-store sales growth of 7%. The increase in franchise and property revenues was driven by franchise same-store sales growth of 7%. The decrease in G&A expenses was due to the lower headcount and lower share-based compensation. Overall, from 2019, the Pizza Hut division has experienced organic growth in both operating profits and franchising.

YUM! Brands’ Cash Flows Statement Takeaways

Liquidity is one of the most important measurements of a company’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, operations, and expansion of franchised restaurant locations. According to the cash flows statement, YUM! Brands has a $253 million decrease in cash and cash equivalents. At the end of the fiscal year, its total cash and cash equivalents amounted to approximately $771 million. Compared to 2020, there was a significant decrease in cash in 2021.

Net cash provided by operating activities was $1.71 billion in 2021 versus $1.31 billion in 2020. The increase was largely driven by an increase in operating profit. Net cash used in investing activities was $173 million in 2021 versus $335 million in 2020. This decrease was driven by the lapping of the prior year’s acquisition of The Habit Restaurants, Inc. but partially offset by the lapping of prior year proceeds from the sale of the investment in Grubhub, Inc. common stock. In 2021, YUM! Brands used a large amount of cash in higher share repurchases.

YUM! Brands’ Risk Factors

COVID-19 Global Pandemic:

Like other businesses, the YUM! Brands encounter challenges and uncertainties, even with efforts to address the adverse impacts of the pandemic. The pandemic has led to the loss of revenues due to store closures, reduced store-level operations, and full or partial dining room closures. Due to increasing practices of social distance, there are changes in the behaviors of both customers and employees that are uncertain to the business. Although the overall adverse impact of the pandemic was less significant in 2021, its negative impacts still exist, especially in Asia.

Competition

Each of the subsidiaries under YUM! Brands operate in a similar highly competitive industry. It is especially competitive in terms of price, quality of food products, new product development, customer service reputation, etc.

The COVID-19 pandemic has accelerated the trend of increasing delivery services, which provokes companies in the retail food industry to develop a more comprehensive delivery system. In addition to the restaurants in the fast-food industry, subsidiaries under the YUM! Brands have competitors from grocery, convenience, deli and the offering by the grocery industry of convenient meals including pizzas and entrees.

Highly Dependence on Franchisees Nationally and Internationally

Since 98% of the restaurants are operated by franchisees, the operating results of YUM! Brands are closely tied to the success of their franchisees. Since YUM! Brands do not have direct control over the operation of the franchises and the willingness of the franchisees to implement marketing programs and company philosophy, there are risks the growth and financials can be adversely affected. In addition, YUM! Brands is highly associated with international operations. Its largest franchisee Yum China is entitled to pay out a 3% sales-based royalty on all Yum China system sales. The risks include the political, financial, and social instability of the international environment.

Summary

Investing in a Pizza Hut franchise is an interesting opportunity especially post COVID-19 pandemic. The entry investment of $367,000 is well suited 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.