Business Models

The pizza franchise industry is quite a diverse and well developed industry. Within the pizza industry there are many business models available to potential franchisees. The following is a breakdown of the 25 franchises represented in this report and the different business models they offer. 1.

Dine In

A dine in establishment refers to all establishment where seating is available for the customers.

Full service

A full service pizzeria is a sit down restaurant where the food is served to the table. Many full service pizzerias will offer take-out and delivery services.

Limited service /Fast food

A limited service or fast food pizzeria may not offer table service. Instead the customer will order, pay and collect their food at the counter. There may be casual diner-style seating available.

Non-Traditional Location:

These pizzerias offer products and services at non-traditional locations including office buildings, shopping malls, stadiums, toll roads, airports, zoos, convenience stores and similar retail facilities. Non-traditional locations will ordinarily only offer take-out and delivery services but may have sit-down facilities depending on the location. 2. Take-out Take-out pizzerias offer customized pizzas made and baked for walk-in or call-in customers to pick up. For more information please see our report on Take-out and Delivery. 3.

Delivery

A delivery service allows the customer to order custom pizzas, which are baked and delivered by restaurant personnel. The customer can call, text or order online. For more information please see our report on Take-out and Delivery. 4.

Take N Bake

Take n bake pizzas are customized pizzas made for walk-in customers. The customer then takes the pizza home to bake themselves at their own convenience. 5. Mobile A mobile pizza vehicle offers a take-out service only.
Table 1: Depicts the 25 franchises represented in this report and the type of business model they are based on:

1 2 3 4

Name of Franchise Ameci Pizza & Pasta, Inc. Arizona Pizza Co. Inc. Blackjack Pizza Boston Pizza

Services Provided Fast food style service/ limited service Take out Full service Delivery and take-out Limited service /fast food style service plus sports bar Delivery and take-out also a small number of franchises now offer limited service /fast food style service Delivery and take-out and full service Delivery and take-out Delivery and take-out and limited service /fast food style service Take n bake and take-out Fast food style service/ limited service/ non-traditional locations Take-out and delivery

5 Bucks Pizza Captain Tony's Pizza 7 Dominos 8 Extreme Pizza 9 Figaro's Pizza 6 10 Godfather Pizza Hungry Howie's Pizza 12 Little Caesars 13 NYPD 14 Nick-N-Willy's Noble Romans 15 Pizza 16 Papa Bello 17 Papa Johns 18 Papa Murphys 19 Pizza Fusion 20 Pizza Hut 21 Red Brick Pizza 22 Sarpino's 11

Delivery and take-out Take-out Full service and delivery and take-out Full service and delivery and take-out and take n bake Full service and delivery and take-out Fast food style service/ limited service Fast food style service/ delivery and take-out Take n bake Full service and delivery and take-out Full service and delivery and take-out Full service Full service and delivery and take-out

23 Shakeys Venuto's Old 24 World Pizza 25 Zpizza

Full service Delivery and take-out Fast food style service/ limited service and delivery and take-out

The Market Leaders

Within the pizza industry four companies stand out due to their system size and sales revenue. They have succeeded through innovation and the ability to adapt to consumer trends. The top four companies are Pizza Hut, Dominos, Papa Johns and Little Caesars.

1. Pizza Hut Pizza Hut is owned by YUM! Brands and is the world's #1 pizza chain with more than 13,200 outlets in about 90 countries worldwide. Pizza Hut has more than 7,500 units in the US which accounts for 11.2% of all pizzerias in the US. They also capture 14.5% of all US pizza sales9. In 1995, Pizza Hut franchises began offering buffalo chicken wings in an effort to offer consumers a variety of tastes and costs. The WingStreet brand was launched in 2003 and has been expanding its presence in Pizza Hut restaurants across the US ever since. Wing Street is now the largest chicken wing delivery chain with more than 2,200 locations. In addition, Pizza Hut launched its most ambitious product in April; in an effort to boost sales it expanded its delivery menu to include pasta. The first of the leading pizza chains to offer pasta on its delivery menu, the new line is expected to generate $1 billion in annual sales.

Delivery Kings Domino's Pizza delivered 400 million pizzas last year. That's a pizza and a slice for every man, woman and child in America. Dominos Dennis Tran, their Worlds Fastest Pizza Maker, can make three large pizzas in only

46.4 seconds. Domino's drivers cover 9 million miles each week in the America alone: thats 37 trips to the moon every week. And if you were wondering, the three dots in the Dominos Pizza logo represent the first three Dominos stores. At the time, the plan was to add a dot for every new store. They quickly ran out of space. 2. Dominos Domino's Pizza, with over 9000 units around the world, is one of the leading pizza delivery companies in the US and operates in 50 other countries. Domino's Pizza brand is one of the most widely-recognized consumer brands in the world. Strong brand image results in a loyal customer base and also helps the company leverage its brand strength to introduce new products. Dominos recently revamped their pizza with a new recipe and denounced their old recipe through a frank advertising campaign. The chain decided to start overhauling its recipes more than 18 months ago after mounting criticism from focus groups and on social media sites. The new pizza, which has a new sauce and cheese combination and herb- and garlic-flavored crust, has proved to be a success as Dominos more than doubled their fourth-quarter profit last year. For the first quarter of 2010 sales surged 18.4% to $381.1 million in the US. In the US, same-store sales rose 14.3% compared to a 1% gain in the first quarter of 2009. Same-store sales refer to the difference in revenue generated by existing stores over a period of time compared to an identical period in the past. International sales rose 4.2%, down from a 6.6% increase a year earlier.

3. Papa Johns Papa John's operates and franchises more than 3,000 delivery and carryout pizza restaurants worldwide. Papa Johns was the first pizza business to offer online ordering and has since been the first business to surpass $2 billion in online ordering pizza sales10. In an effort to expand, Papa Johns has waived the franchise fee of $25,000 for new franchisees in 2010 and have also a reduced royalty on sales for the first 12 months for on-time restaurant openings, including a 0% royalty rate for restaurants opened by June 2010.

4. Little Caesars Little Caesars Pizza is known for its low prices and simple menus. Little Caesars, which operates carry-out restaurants, was the fastest-growing pizza restaurant chain in the country in 2009, growing by about 100 restaurants to 2,600 according to the food service industry consultant Technomic Inc11. The Detroit-based company, which is the fourth-largest pizza chain in the US, grew in sales to $1.13 billion in 2009 from $1.06 billion in 2008.

Food Take-out and Delivery Franchise Industry Report

This study is a brief review of the U.S. take-out and delivery franchise industry. It is based on data collected from the Franchise Disclosure Documents (FDDs) of 27 take-out and delivery food franchises and published industry sources.

Definition
A food take-out and delivery business is defined as a business where food is intended to be eaten off the premises. Food can either be taken to go by the consumer or delivered to the consumers home or place of choice. For the purpose of this report the franchises selected all provide take-out and delivery services. Some of the franchised restaurants offer take out, delivery and catering services alongside the main sit down area of the restaurant whereas other franchises offer only take-out and delivery services. Whether a franchisee employs drivers or uses a restaurant delivery service, take-out and delivery offers the opportunity to boost sales by appealing to time constrained consumers.

Industry Background
Take out and delivery sales account for approximately 6% to 12 % of total sales in

restaurant franchises that primarily cater for on premises business but who have a take out and delivery section. According to the National Restaurant Association, nine in ten family-and casual-dining operators and three-quarters of fine-dining operators offer food for takeout . A second survey completed by the National Restaurant Association indicated that 66% of quick service operators believed that food delivery would become more popular during 2009. Take-out and delivery is an effective way for a restaurant franchise to increase sales. According to the National Restaurant Associations 2009 Restaurant Industry Fact Sheet, 69% of adults said purchasing meals from take-out and delivery restaurants makes it easier for families with children to manage their day-to-day lives. Dominos Pizza, one of the leading delivery and take-out franchises, has experienced increased success due to the rise in popularity of food take-out and delivery. Dominos operates a worldwide network of nearly 9,000 franchised and company-owned stores and generated revenue of $1.37 billion last year. Net income as-reported was up 76.6% versus the prior year, 2008.* This is driven by improved operating margins, lower interest expense, international store growth and an increase in the popularity of take-out and delivery foods.

Variety of take out and delivery restaurants

Take-out and delivery only Certain establishments do not offer any sit-in facilities but cater entirely to consumers who want a food delivery or collection service. Delivery has long been a staple for many restaurants, especially pizzerias, which dominate the deliveredfood category. For more information on the pizza franchise industry please click here. An advantage to this type of franchise is the lower start up costs which have a low initial investment cost of $155,600 to an average high initial investment cost of $453,600. For example, the start up costs for a Little Caesars Pizza franchise is very competitive and the fees associated with franchising the brand are modest. The estimated initial investment required per franchise location ranges from approximately $185,050 to $519,000 for a standard Little Caesars carry-out location. Full Service Restaurants According to the National Restaurant Association, 37% of American adults have used curbside takeout calling in their order to a full service restaurant for pickup . These franchises and businesses offer a full service dining area, a full menu and also a take away or delivery service such as Zios Italian Kitchen franchise. All of Zios to-go dishes are packaged in special containers designed to stay hot, hold their flavor, and travel well. More relaxed fast food restaurant franchises such as Woodys Hot Dog also provide a take away or delivery service.

Catering Many established restaurant franchises and businesses do not offer individual orders for delivery or take-out. Instead these establishments offer catering for parties generally over 8 people. Delicatessen Most delicatessens in the United States have a sandwich menu, most of which are made to order behind the counter at the time of sale, to be consumed off the premises. They also sell cold cuts by weight and prepare party trays to be consumed off the premises. For more information please click here. Drive-thrus Customers are hungry for choice in where, when and how their food is cooked and served. Drive-thrus have experienced increased popularity due to the convenience and cost effectiveness that they offer the consumer. When consumers decide on which drivethru to visit, the key factors that they take into consideration are speed, menu, price and location.

Demand Determinants
Eating in is the new eating out Consumers want the eat out experience of quality food but are saving money by eating food delivered to their home. According to the market research firm NPD Groups 2009 study A Look into the Future of Eating, the number of restaurant meals eaten at home is expected to grow by 20% in the next 10 years. The increase of at home leisure activities has been a key growth driver in the take-out and delivery franchise sector. This market is largely being catered for via pizza home delivery franchises such as Dominos Pizza. However there is an increasing consumer demand for take-out prepared meals. Technology and Innovation The internet offers restaurant franchises and businesses a new market in which to reach potential customers. Increased trust in online purchasing and the introduction of new ecommerce platforms offers the benefit of convenience to consumers. An increasing number of online users in the US will order food online. It is predicted that the internet, interactive TV and text-messaging will eventually overtake telephone ordering of

collection and home delivered foods. It is therefore important for a business to promote themselves online and through new media. Pizza Hut, which ranked no. 5 in Franchise Directs Top 100 Global Franchises, has used a new smart-phone application in order to boost sales. The smart-phone application, which was released in July 2009, was responsible for $1 million in sales by the end of November 2009.

Take-out and Delivery Franchise Companies

The table below provides an overview of the estimated initial investment required to open a single unit of the 27 take-out and delivery franchises sampled in this report. It includes the initial franchise fee payable on signing the franchise agreement, and the ongoing sales royalties payable to each franchisor. It also contains a detailed profile of each franchise which presents these costs in more detail. The profiles are extracted from the Franchise Disclosure Document (FDD) of each of the 27 franchisors. Name of Franchise Dominos Industry Royalty 5.5% 6% 3% 7% 6% 2% 5% 6% 4% 5% 5% 4.5% Total Initial Investment low$119,950 $185,050 $161,800 $478,000 $209,111 $448,000 $794,000 $186,500 $133,200 $1,699,000 $165,450 $162,960 $101,000 5% $121,100 Total Initial Investment high $461,700 $519,000 $380,100 $2,787,000 $379,811 $629,500 $2,194,500 $257,500 $222,800 $2,780,500 $345,400 $346,810 $398,450 $433,000

Take-out + Delivery Little Caesar Pizza Take out Take out + Blackjack Pizza Delivery Restaurant + Pizza Hut TaD Restaurant + Papa Bello TaD Restaurant + Godfather Pizza TaD Restaurant + Shakeys TaD Restaurant + Zpizza TaD Ameci Pizza & Restaurant + Pasta, Inc TaD Restaurant + Boston Pizza TaD Restaurant + Bucks Pizza TaD Restaurant + Captain Tony's Pizza TaD Restaurant + Figaro's Pizza TaD Hungry Howie's Restaurant + Pizza TaD

NY Pizza Department

Restaurant + TaD Restaurant + Pizza Fusion TaD Restaurant + Native New Yorker TaD Restaurant + Bom TaD Restaurant + Boneheads TaD Restaurant + Casa Mia TaD Ramano's Macaroni Restaurant + TaD Schlotzsky's Restaurant + TaD Caf Yum Restaurant + TaD Restaurant + McAllisters Deli TaD Dagwoods Sandwich Restaurant + Shoppe TaD Massimo Zanetti Restaurant + Beverage Cafs TaD Restaurant + Mobys TaD

6% 5% 5% 4% 5% 4% 4% 6% 6% 5% 6.5%

$422,696 $305,300 $742,850 $197,100 $391,000 $43,900 $2,247,180 $519,300 $348,000 $417,500 $306,800 $80,000

$544,300 $405,500 $1,713,600 $574,700 $680,000 $283,500 $4,997,230 $758,500 $499,000 $949,000 $346,000 $500,000 $75,000

5%

$15,000

Challenges
Delivering food presents unique challenges, such as hiring and retaining reliable drivers and packaging food properly to maintain its quality. To become successful it is paramount that the delivery and/or carry-out services are done in a timely manner. Convenience, taste, texture and accuracy in ordering are very important. Many restaurateurs worry that their reputations will suffer if they deliver food. If the food is the consumers first delivery experience and it is poor, the consumer may never frequent that restaurant again. Little Caesars, for example, say that the delivery option began to interfere with the companys business model and affected the quality of their food. For this reason Little Caesars offers only take-out pizzas. However, with take-out and delivery becoming ever more popular this is not a choice that many restaurant owners have. If a franchisee wants to make sales they need to be aware of, and respond to, the increased market demand for take-out and delivery.

Conclusion
Take-out and delivery is a thriving segment of the restaurant market. For traditional dine in restaurants expansion into take-out and delivery creates the opportunity to increase sales. For franchises that only offer take-out or delivery, such as Dominos, the long term and growing consumer demand for convenience and value creates a favorable business climate. As eating at home becomes more popular and advancements in technology make ordering food more accessible through different media, the take-out and delivery industry is forecast to continue to grow through 2010.