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LITTLE CAESARS: What Franchisees Make on a $5 Pizza

November 17, 2009

Question:  Can Little Caesar’s franchise owners really make money on a five-dollar pizza?

Answer:  Not much. 

SmartMoney.com surveyed franchisees from different franchise chains regarding the cost to them of some current and recent promotions. The Smart Money article points out that franchisees generally bear the brunt of a promotions’s cost, including the food, labor, rent and utilities, among other things.

Here’s the Little Caesars HOT-N-READY pizza promotion, which report a $.90 profit per $5 pizza:

Little Caesars

Promotion: HOT-N-READY Pizza – Get one 14-inch large cheese or pepperoni pizza for $5 at participating locations.

Pre-promotion price: $10.99 (one large one-topping pizza)

Promotion Price: $5

Bottom line for restaurant: Profit of roughly 90 cents a pizza

Introduced six years ago, Little Ceasars [sic]HOT-N-READY Pizza promotion offers 14-inch cheese and pepperoni pies for just $5. Even though some stores charge about 55 cents more than that, margins are still slim. The cost of a single pizza’s ingredients and packaging amounts to about $3.50, according to a franchise operator in Georgia. Tack on another 60 cents for rent, labor and utilities and franchisees earn roughly 90 cents a pie. Little Caesars’ spokeswoman Colleen Kmiecik says the company’s own calculation on per-item profitability differs from those provided to us by franchisees, but she declined to provide specific figures. She also says the company provides long-term profitability information to its franchisees to show how the promotion will boost their bottom line, but would not provide further details.

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WHAT DO YOU THINK OF LITTLE CAESARS PROMOTIONS?  SHARE A COMMENT BELOW.

Comments

41 Responses to “LITTLE CAESARS: What Franchisees Make on a $5 Pizza”

  1. [...] LITTLE CAESARS: What Franchisees Make on a $5 Pizza [...]

  2. tom says:

    It’s not the pizza they make money on. It’s overpriced soda. And especially the breadsticks. I mean they take about 20 cents to make and they sell for $2,29 net. That’s basically pure profit. Plus when any other pizza is a buck more and any extra topping is $1.75 then there you go. Maybe if Little Caesars only sold five dollar pizzas they wouldn’t make it, but that isn’t the case. If that were true then why would anyone ever invest in a Little Caesar’s franchise…. DUH

  3. guest says:

    It is tough to own any franchise. Tom is right though that they make most of their money on other products like pop and other toppings. When they add other toppings onto their pizza, they also use less cheese and toppings, thus saving them money!

  4. Guest says:

    Let’s see,my store does about 14,000 a week around 12500in the winter months…take away roughly 3000 for labor another 3500 food and paper…and another let’s say 1200 utilitys….rent around 2000$…so there is a profit….its a great company….great franchise to have.

  5. RJ says:

    You make 14,000 a week selling 5$ pizza’s? wow your a freaking master mind!!!!!! That would mean you sale 400 pizza’s everyday.

  6. Chris says:

    400 a day seems possible. The one up the road from me is hopping all day and night. Every time I go in there I see at least 3-4 people walk out with 5 pizzas at a time.

  7. Bob says:

    Lots of money to be made at Little Caesars!!!!

  8. Bob says:

    Fresh dough, cheese !!!

  9. Max Johnson says:

    The franchise owner didn’t mention the royalty and the advertising fees which can be roughly 10% of your gross sales. It is clear that these owners are struggling during the winter months,

  10. NK says:

    Any owners mind sharing their thoughts with me? i’m a potential owner wanting to talk numbers!

    RJ – that’s assuming all customers are buying are $5 large pies, but factor in a couple of 20oz sodas or a 2 liter, maybe a cheesy bread, and sales per customer can easily double or triple quickly (eg: two 20 oz will run you $3, a 60% increase of the original $5 estimate)

    i think you need to educate your sales force to push the up sale (would you like a fresh and tasty cheesy bread with that? what would you like to drink?)

    Max – true, and skimming 10% (of the net i believe) for royalties and ad still leaves a decent profit

  11. Max Johnson says:

    NK, it all depends on where you are located. For instance, that above franchisee mentioned $ 2,000 for rent. I was looking a couple of months ago into a Papa Johns franchise and the locations that I could find were at least 2 to 3 times as much.
    If you open your store in a low-income neighborhood with a lot of people, you are more likely to succeed.
    Keep in mind that food franchises have a low return on investment. The initial investment can run as high 400,000 and the average profit can be less than 75,000 EBITDA. By the time you pay taxes, interest and so on, you might be left with less than $40,000.
    How long is it gonna take to recoup your initial investment, considering that you have to live on those $40,000?

  12. NK says:

    Max – thanks for the feedback, if we assume your figures are right, 40K on 400K is a 10% return, which I’d say is a success. If you have to live on it then so be it, but it’s a still a solid return, am i right? if you are a good operator then this can go higher i’d assume.

    anyone able to speak to the general accuracy of these figures?

    and i agree low-income, densely populated areas are the way to go, no argument there

  13. Rich The Business Guy says:

    Here’s a smart way to run a Little Ceasers have the morning people make a hundred or so Hot and Readys don’t cook them and put them in the refrigerator. with parchment paper on the top then when you need one or ten throw them in the oven simple. also fountain drinks are basically 99% profit not bottles or cans how do you think Movie Theaters stay in business. because believe it or not they only make 10% off each ticket during the first 2 weeks I believe. then its 20% then 30% that’s how small small Independent Movie theaters can’t show any new movies for the first month and most closed down. in this struggling economy it’s pretty sad if you think about it…!

  14. Tom says:

    $40,000 is indeed 10% return, but how did one obtain the original $400,000? Was it borrowed with interest? Also, that $400k will grow as new equipment is added or needed such as POS equipment, computer systems, software, etc. So, that $40,000 could very well end up being a 4-5% return.

  15. Todd A. Peterson says:

    Where do you guys buy your pizza supplies (Ingredients)? Can you buy from someone else or just the supplier your franchisor approves?

  16. Steve K says:

    If you do not have anything of use to say, please do not waste everyone’s time giving out your uneducated opinion on a franchise that you know nothing about. If you are a franchise owner I would be very interested in any,thing you have to share.

    Thanks

    Steve

  17. vernon M says:

    I am interested in franchising. I am a vet and I have been reading about some discounts that may exist for those vets with a disability. If you have any information on how much the overall startup will cost and where might I get some finacial assistance. Thanks in advance.

  18. JudyM says:

    Vernon – those discounts are for any honorably discharged veteran and many franchisors offer them. The trouble is the discount is off the franchise fee which is only a small part of opening most businesses. But, there are special SBA loans for veterans with good credit. They require vary little down and may be something to look at. You can contact me through our website and I can direct you to some resources. Thanks for your servies too.

  19. Sam says:

    I know this is a little off topic. I’m a firefighter and have to work about 10 24 hour shifts a month. How much should a owner be at the restaurant?

  20. Sam says:

    Sorry I guess I should have stated I was considering getting into a little ceasers franchise.

  21. Todd A. Peterson says:

    My name is Todd Peterson and I have 6 1/2 years experience in a franchise bus. It all boils down to this, is your franchisor taking care of those who are buying his franchises now and how often are franchisees losing their franchise.

    Is your franchisor a member of the IFA (International Franchise Association)?

    If your franchisor is a member of the IFA understand this, “Your are screwed if your franchisor commits criminal acts against your franchise.” The IFA has been protecting franchisors for years. They have their members build into their contractual agreements things like if you have an issue the state of the franchisor will be your choice of forum for getting that issue resolved. If the issue can’t be resolved then you agree to arbitration (binding?).

    There are 4 tool companies with franchise agreements: Matco, Snap-On, Cornwell and Mac. All of them are based out of Ohio and if you are unhappy with them Ohio is where they make you go if you want justice when criminal acts occur upon your franchise.

    The FTC is the organization responsible for policing the industry but many complaints have been filed and they do nothing and if your case involves fraud, threats, false documents and a false termination then you better hope someone else has had those crimes committed against your franchise as well because per MY conversation with the FTC they will only take action against a group of franchisee complaints. My franchisor is advertising his franchise as an employment opportunity which is against FTC rules and I know of several complaints against my franchisor Matco for this but the IFA does nothing. They are still advertising their franchise as an employment opportunity through careerbuilder.com.

    My best advice is RUN from franchising! I know it is a wonderful concept but if it is so protected that no one will do anything about those who commit crimes against your franchise why would you risk it.

    But if you decide to go forward:

    1) Read your F.D.D. THOROUGHLY! (Franchise Disclosure Document)
    2) Call 10 AT RANDOM off your F.D.D. who already own a franchise. DO NOT LET YOUR FRANCHISOR PICK!
    3) Call 10 who are terminated! Yes, more than likely there are A LOT to pick from.
    4) Very Important! Attorney! Find a reputable attorney (this is really hard) who can do some homework on your franchisor and give you advice. JUST KNOW! (as an American who was falsely terminated and threatened with the loss of his franchise to surrender customers as well as had false documents created to terminate him from his franchise) there are not many attorneys who don’t roll over for big money and you are not the one with the money.
    5) Finally! Ask yourself “Do I really need this franchisor?” “Would I be a lot better opening my own small business than making myself a slave to a franchisor who has nothing for me to gain but a name?” “Do I really want to be a slave to royalty fees and buying the vendors prices for the stuff to make a pizza when I can get them elsewhere?”

    If ANYONE wants to ask me a question involving a franchise contact me through facebook or through unhappyfranchisee.com

    Just for the record I was #41 out of almost 1500 franchisee locations my first full year in business.

    I am a veteran of the United States Army who served in Korea during “Desert Storm”

    I love America and the People! I hate our government that puppets us and chooses who will succeed!

  22. Fer says:

    Hi,

    How many Pizzas + Crazy breads can a Little Caesars sell per day?

  23. Walter white says:

    Fountain sodas 99% profit. You must be stealing the syrup, co2, cups, straws and the ice from 7-11. Electricity is 1% knob. A franchise, any franchise is buying a job. Period. Good, bad or ugly. A McDonald’s if you could ever get one nets the average
    Owner 335,000$ annually. That’s the top dog. King of the hill. A concept like chipotle can do 80,000 a week with unbelievable margins. Cogs is so low you would take your mother to Aruba scuba diving to get one. That’s why you can’t. Highly profitable, smartly run concepts don’t need us to buy them. Chipotle has it down too. Where did they get their $. Ronald McDonald, and paid his ass back in no time. Beware cause they have duplicated all foods to their way of thinking and soon you will see. Prototype Chinese already in DC. Do it on your own. Steal the concepts idea, put your heart and soul in it so you have no one to blame if you go out. Be the master of your own destiny. Power to the little man.

  24. Kishan says:

    If you have $400k you are not going to invest all of that in LC. The most likely case is that you will require $400k, which your would obtaining via a bank. The bank will require about 20-30% downpaymen, maybe lower or higher depending on the program and/or your credits, background. Worst case, you are required 30% downpayment so your initial invest to start LC franchise is $120K, making $40k a year is actually returning about 25% on your initially invest. But you have to take into account your payment to the bank for the loan, franchise fee, etc.

  25. RC says:

    Trust me, they make money at it.

    I’ve worked for LCE 3 times. The first time the big sell was 2 everything pizzas for 10.99. We made money. The second time was adding to the menu to make the place a LC Italian Kitchen. In my area alone there were 40 planned in a 12 month period. They stopped after 4 because it didn’t work. The last time $5 Pep Pizza. They make money.

    The owners watch the bottom line like a hawk. If what they do does not make money they stop. Franchisees are making money if they are taking care of customers.

    Fact- 98% of non franchised businesses fail. 98% of franchised businesses succeed.

    [RC - What you say about Little Caesar's may be true, but both your statements that 98% of non-franchised businesses fail and that 98% of franchise businesses succeed are untrue and dangerous. The "98% franchise success rate" is a lie that is perpetrated by dishonest franchisors, brokers and salesmen that's been long since debunked. If you have any doubt, look at the franchise failure rates of these franchises: http://www.unhappyfranchisee.com/worst-franchises-in-america/ Or read through the rest of the site. - ADMIN]

  26. PizzaDude says:

    It will cost you around $250k to go into a space and put in an LC. You may can find some landlords who will be willing to give you some build out money, then tack it on the lease. If you do your homework and are good at negotiating, you can get into a store for $60k (not including any finish out a Landlord may supply).
    Also, some of the finish out you can do yourself to save labor expense.
    if you open a location and operate it, you can easlily pull 100k per location.
    But, you need high visibility, easy access and a minimum 10k people within a mile radius.
    I have 6..

  27. Bill says:

    I agree with Mr. Peterson…. If your interested in numbers do your homework; request an FDD and quite frankly research the brand….. How many closures and why? The numbers on here appear to be guesses and leaving a lot of costs out of the picture… Lots of reference to putting a store “in low income densley populated areas” Really, is that where you want to work 60-70 or more hours a week? Four major national brands with in a 1 mile of your proposed locations with boards on the windows? The franchisor is not the one who will be staffing the store or making bank runs, they will not be receiving the phone calls at 2:00 a.m when the alarm has gone of for the third time that week. Franchising is beautiful when it works, and very ugly when it does not….Finding what your passionate about first, and then finding the right franchisor in that industry… What is their strategy get rich off selling equipment, store supplies/commodities, and opening stores or building a sustainable brand that focuses on growth by making their franchisees profitable….

  28. John Denver says:

    The numbers make no sense, one guy said his best day was 200 pizzas on a Friday, seems that is the best day. The only way these guys would make money is probably taking food stamps and discounting the Stamps for pizzas.

    The numbers make no sense, these guys used to run convenience stores in Black neighborhoods where they sold stuff for food stamps, no wonder so many got caught, using the same model they will make money or since this is a cash business can do a lot of laundering

  29. swtrader says:

    I have been a banker and a small business owner — but never a franchise. Am ‘considering’ a LC unit. However, doubt I’ll go that route. Other self-started businesses take less cash and have much less risk. As to ‘return’, since my mom ran a small convenience store 30 years ago, I’ve been mesmerized by what some business owners consider return on investment. (Read the finance books….including real estate finance books….they detail different returns.) The FIRST thing any business owner should consider is how much his time is worth. If he’s leaving a $50,000 per year job to open a dinky franchise, his ‘opportunity’ cost is $50,000. EVERY business owner should ‘pay’ himself a reasonable amount (including taxes and benefits) whether he/she takes the actual cash out or not. In other words, if your EBITDA is $40,000 a year and you work 10 hours a week running the business and assume you’re worth $25 an hour, deduct 1.2x $25 (to include benefits) so 52 weeks x $30 an hour x 10 hour weeks = $15,600. Your ‘return’ is now $24,400 on $400,000. As the finance books teach, a risk-adjusted return is much, much higher than the approximate 6% you’re getting out of this business. As real estate people know, cash-on-cash return is one key measure. If you paid $50,000 cash and borrowed $350,000, your cash-on-cash return is $24,400/$50,000 which is close to 50%. (Even this is incorrect because the interest carry has to considered differently.) The point being: before you learn how to make a pizza, learn how to read a financial statement and how to determine true cash flow and ROI, ROA, terminal values, exit strategies, etc., etc.

  30. Fino Sosa says:

    You hit the nail right on the head swtrader. A lot of people get into franchising without knowing the finances and the worth of their own time they put into the business. However, as the owner you do own the freedom of being your own boss!

  31. StevenAdair says:

    It may have been mentioned earlier in this discussion; I may have missed it. But, recently a franchise in the town where I live removed some main ingredients from it’s product; stuff they’d offered for years. A fellow in town had just opened his store a few months before. I was wondering what happens to the franchise holder when the company changes the product in a way that loses customers.

  32. MJH says:

    According to Little Ceasars own website, they state…”The amount of profit is based on a number of factors, including sales, costs, and the franchisee’s ability to manage the business. Little Caesars does not, however, make or release earnings claims and it does not authorize anyone (including its employees) to make such claims.”

    So let me see if I got this straight. They want us to hand over a chunk of money, yet they don’t want to discuss or allow anyone else to discuss something as basic as potential income? Seems a little suspicious to me

  33. Bill says:

    Bill: The problem with the FDD is section 19 which provides information about profitability is not based on an overall average. It can be any collection of stores the company chooses to use.

  34. Jr. says:

    i have a question, i have worked in the restaurant industry for 28 years i have worked all positions in a restaurant and i also have done restaurant maintenance hvac refrigeration kitchen equipment ect. i have a chunk of the money to open a little ceasars. theres a opportunity in a small town where i live for a franchise. do you think if i ran it myself i could profit $500 to $600 a week after all expenses? im not wanting a huge return but the opportunity to be my own boss. im not wanting to get rich, just make a living. thanks for any input

  35. Abdul Qadir says:

    Absolutely. But what is the population of that town n income profile. Just for your info if your store is doing 14k plus a week than your net income should be between 5 to 7k a month provided your food cost n labor cost in under control. I m running little caesars from last two years as a manager now as a owner.

  36. David says:

    First, I am not a franchise owner, just a customer of LC with an observation. I read with interest the comments regarding profitability of franchises in lower-income, high density areas. I live in Herriman, Utah, a suburb of Salt Lake City. It’s a fairly well-to-do area, but not yet densely populated. I drive by LC pretty much every night, and the drive up window is always backed up with a long line of cars. I went in to the store last night to pick up a pizza, and the inside was also packed. It was a Thursday. I find it very credible that this store could easily sell 400+ pizzas daily. I couldn’t imagine how these franchises prepare for super bowl!

    If I were to ever consider a franchise, I’d seriously consider LC, because I LIKE the pizza. Same goes for anything I’d invest in… look around my house, see what I use, and invest in those companies.

  37. bill says:

    I didn’t realize going to Utah I would pass over the international date line. In NJ yesterday was Wed.

  38. TH says:

    lets say your store does about 14,000 a week about 2k a day that would be close to 730k a year not including expenses right?

    so i would like to know what would you pay the store manager?
    i ask because it seems that if you are able to open 3 – 5 stores that means you are making some good money your self u pay regular employees min wage and everyone else a little more then that.
    if your store manager has been there longer then every one else and has been loyal and hard working what would u pay him?

  39. david says:

    My store is making an average $19,000 a week, labor $3500 weekly including general manager and assistant, food cost is running 41% a week which is around $8000 , rent $2500 , little caesars fee 14% total of gross sales , utilities $1500 , don’ t forget that you may waste a lot of food since it has to be hot-n-ready all the time which means you have to trash everything older than 30 minutes . Store managers salaries are running from 30k to 40k with bonus , then assistant $11 per hour ,also salary assistant around 28k to 30 k.

  40. old dog says:

    So david based on your numbers the assistant mgr makes more than you.

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