Pizzeria franchise incentives spur development

Pizzeria franchise incentives spur development
Tags: Franchising & Growth, Papa John's, Pizza Inn
September 3, 2009 - Richard Slawsky

For those interested in getting into the pizza business, there may be no better time than the present.

A number of pizza chains are offering discounts on franchise fees or royalty payments as a way to fuel growth and attract quality operators.

In July, Marco's Franchising LLC, which operates Marco's Pizza restaurants, launched a number of financing tools to assist current and potential franchisees.

To help with store down payments, Marco's introduced a private equity fund that can invest $50,000 to $100,000 per store. The company also is developing a $50,000,000 private equity fund that would finance up to $250,000 of a new store's cost, depending upon the franchisee's investment.

"Marco's Pizza's year-to-date growth is outstanding given the tight credit environment," said CEO Jack Butorac. "These financing tools were recently introduced to help increase Marco's growth rate through franchisee candidates and expanding franchisees facing credit challenges."

The company has grown more than 10 percent in the first half of 2009.

In March, RedBrick Pizza Worldwide Inc. began offering qualified master developers interest-free financing for up to 50 percent of their master franchise fee. RedBrick Pizza master developers own a geographic territory and share in royalties and advertising fees. They can open their own locations and sub-franchise.

And Papa John's introduced several development incentives earlier this year to assist aspiring franchisees.

Papa John's program offers new and existing franchise owners:

No franchise fee (a $25,000 value)
No royalty for 12 months
A $10,000 early opening award

The program is valid for approved franchisees who sign a development agreement before Dec. 27, 2009. Company officials say the program has fueled growth and generated a tremendous amount of interest from people interested in opening a franchise.

"We started the year worried about closing 100 or 200 stores," said Papa John's CEO John Schnatter during the company's Q2 earnings call. "We've got that (estimate) flat now and we want to turn that number around to positive growth."

Programs not likely to last

Other companies are also reporting postive results from their incentives. Pizza Inn officials credited that company's incentive program with the signing of 13 new franchising deals in recent months.

Pizza Inn's program, which was offered to both new and existing franchisees, included 0 percent royalty for the first full year of operation and 2 percent royalty for the second full year.

In recent months, two current Pizza Inn franchisees signed agreements to open five locations in the Spartanburg, S.C. area, while other existing franchisees will be opening locations in southern North Carolina, Knoxville, Tenn., Ardmore, Okla., and Pontotoc, Miss..

The company signed deals with three new franchise groups to develop locations in Abilene and Ft. Worth, Texas and Jesup, Ga.

"The current economic environment presents an excellent growth opportunity for us, as families continue to seek more economical dining options," said Pizza Inn CEO Charlie Morrison.

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Aspiring franchisees might consider moving quickly on a franchising deal while the incentive programs remain in effect, however. Now that the recession seems to be waning, companies are likely to begin scaling back their incentive programs.

Papa John's officials have already hinted that their franchisee incentive program may not last much longer.

"Unit economics are much stronger than they were 8 or 9 months ago," Schnatter said. "Furthermore, we are running the most profitable months in our corporate stores, and our franchisees are too, in the history of the company. In 2010, I don't see that we will need to give the support we did in 2009."