5 Reasons Why Not To Buy Pizza Hut's Franchise

Table Of Contents

1 Pizza Hut Is Losing It’s Supposed, Yum.
2 Why You Should Not Buy Pizza Hut Franchise
3 Benefits of Buying a Pizza Hut Franchise
4 Conclusion

The largest Pizza Hut franchisee in the United States, NPC International filed for bankruptcy in 2021 for a plethora of reasons. Yet, while some blame the company’s downfall on the pandemic of 2019, others blame it on the steady erosion of profit margins due to declining sales and increasing competition.

Should NPC International have paid attention to its competitors Dominos or upcoming brands with new exciting healthy dine-in like GFG or Taffer’s? Absolutely. But is this the sole reason for its downfall? Not necessarily.

By researching both company disclosure documents, franchisees, and customer complaints, Fransmart carefully drafted the relevant information believing that this helps make an informed franchise purchase decision for the business.

Hi, I’m Dan Rowe. As a franchise industry veteran, I think you should know where to get the best help when buying a franchise. My team and I have helped hundreds of entrepreneurs climb to the top of the success ladder with chosen 11 multi-bagger franchise opportunities in the fast-casual restaurant industry. We cover all aspects of franchise ownership, including finding the right franchise, financing, SBA loans, finding real estate, hiring great staff, opening day, cash flow issues, and more.

Pizza Hut Is Losing It’s Supposed, Yum.

Pizza Hut is having trouble with rapidly rising labor costs, up to 20 percent in some areas. With delivery costs reaching new heights, Pizza Hut has cut jobs to keep prices down for consumers. But despite the chain’s efforts to appeal to new customers, Pizza Hut is continuously haunted by the pressure of competition from rivals Domino’s and Papa John’s, which are both innovative, cost-effective, and swift to meet customers’ ever-changing needs.

Effective from Jan. 1, 2022, David Graves will replace Kevin Hochman as President of Pizza Hut U.S. Hochman is currently serving as President of Pizza Hut and KFC in the United States. However, he will be returning his focus to KFC to serve as their new President full time.

The pizza chain has more than 6,000 locations in the United States and nearly 5000 or so in almost 100 countries worldwide. PepsiCo acquired Pizza Hut, founded in 1958 by brothers Dan and Frank Carney in 1981. Then in 1997, Yum! Brands, the owner of brands such as KFC and Taco Bell — accepted Pizza Hut from PepsiCo.

Depending on which style of restaurant you’re looking for, Pizza Hut offers two different business opportunities. Traditional opportunities are local restaurants found in conventional areas, while non-traditional opportunities are within shopping malls, movie theatres, casinos, or airports.

Traditional opportunities

Restaurant-Based Delivery
RapiDelco
Fast Casual Delco
Delivery-Based Restaurants

Non-traditional opportunities include:

Mini kitchen
Kiosks
Retail counter
QSR seating

Why You Should Not Buy Pizza Hut Franchise

The latest statistics show that while the overall pizza pie market is increasing, Pizza Hut’s slice of the pie is shrinking. The customers are showing more interest in new healthy diet menus from recent brands like Ike’s and Halal Guys. Know reasons why buying Pizza Hut franchise would not be that best of a decision in 2022.

#1 Bankrupt Franchisees is Big Evidence

NPC International, the largest Pizza Hut franchisee in the United States, would sell its 1300 Pizza Hut locations and around 200 Wendy’s restaurant locations. They are registered for Bankruptcy protection Chapter 11 in July 2020, citing a $1 billion debt burden. The closure of Pizza Hut locations has been assumed to underwhelm the remaining food chain locations, with a significant proportion of them being dine-in establishments. In recent times, franchise owners have suffered from a continuous loss in profit margin. They cannot cope with the burgeoning competition. This pizza chain fails to manage the internet-driven industry and shift in consumer preferences; hence, new franchise buyers need innovative options like Brooklyn Dumpling or Slapfish to survive in the dynamic QSR industry.

#2 Very Low-Profit Margin For Franchisees

The fee for Pizza Hut franchise is about $25,000 p.a.for a twenty-year term, but the overall initial franchise investment cost varies between $367,000 to $2,063,500 for traditional opportunities, and $40,600 to $472,000 for non-traditional opportunities. Also, franchisees pay about 6% royalty fee with an extra 3% towards national marketing initiatives. A minimum of $700,000 net worth is also required to buy a Pizza Hut franchisee with liquid assets a minimum of half of the net worth amount. Franchisees earn a median of $100,000 each year in financial gain. Because of the total franchise fee to Pizza Hut’s corporate headquarters, the net gain is only 3% to 7% of yearly store sales.

While the amount of money you can earn as a franchise owner depends on various factors, there are some general benchmarks stated in FDD item 19 for every business. But are these realistic income projections? How much do franchise owners make?

The video below will show you how to calculate your return on investment (ROI) in 10 years for any franchise investment. It will also show you how much money you can expect as a business owner before taxes.

#3 Increase Demand for Take Out

Pizza Hut aimed to provide a dine-in experience to the fast-food category, unlike its main competitors. On the other hand, Domino’s focus on being a takeaway and carry-outs restaurant helped them grow. Since Covid-19, Pizza Hut has been facing a steady decline in demand and sales.

#4 No financial help From Franchisor

Pizza Hut does not indirectly or directly offer any financing arrangements for franchisees’ continued operation of their restaurant locations or initial investment except in a few cases. Besides, even if the franchisees satisfy all the program requirements, the Franchisor can refuse their participation in one or both lending assistance programs. Their lending programs are subject to termination at any time. At the same time, the investment cost of buying a Pizza Hut franchise is too expensive.

#5 Restrictions and Obligations

Pizza Hut offers franchises to those who have retail management or solid restaurant expertise. Franchisees can only open a minimum of two locations and 5 Pizza Hut locations in a lifetime. Besides, chosen franchisees must complete a training program for about two months in Dallas, Texas.

Moreover, every restaurant should be directly overseen by the on-site manager who has finished the required training program. Franchisees should also maintain and assign one or more skilled operators who actively participate and manage ownership and everyday operation of their franchised setting. LLC must approve every qualified operator, and this approval cannot be withheld without cause. Unless the Franchisor agrees otherwise in writing, franchisees should always sell only and every approved product that the Franchisor demarcates as standard for the system restaurant type that franchisees operate.

Benefits of Buying a Pizza Hut Franchise

With several drawbacks, buying a Pizza Hut franchise has a few underlying benefits, including brand recognition that may work for a few individuals with a high success rate and low-risk opportunity right in front of them.

About 91% of individuals in the United States eat pizza a minimum of once a month. You provide the highest demanded and loved delicacy when you buy a pizza franchise that almost always generates a profit. Indeed, demand does not guarantee the company’s success, but that does contribute to making it a viable alternative.

Conclusion

Buying a Pizza Hut franchisee requires a net worth of over $300,000. The cost of insurance, the cost of uniforms, permits and licenses, equipment and signs, real estate costs, and so on are all factors to consider before buying a Pizza Hut franchisee. Besides, you must thoroughly evaluate your past business expertise before becoming a Pizza Hut franchisor owner.

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5 Reasons Why Not To Buy Pizza Hut’s Franchise