At Little Caesars, “pizza, pizza” can turn into profits for franchise owners. (Photo: Little Caesars)
By Steve Dinnen
Does Des Moines have enough pizza? Little Caesar doesn’t think so.
The nation’s third largest pizza chain is scouting for entrepreneurs with a little money and a lot of stamina to join the ranks of franchise America, that vast empire of individually small businesses that feed us, clothe us, wash our cars, cut our hair, change our tires, fit us for eyeglasses and teach our kids to swim.
Franchising is alive and well. The economic output from franchising is projected to near $1 trillion this year. This constitutes an integral part of the U.S. economy and is expected to outpace overall national economic growth in 2025.
The appeal of a franchise is that Mr. and Mrs. New Business Owner don’t start from scratch but follow blueprints drawn up by the company’s founders. At Little Caesars, former Marine Mike Ilitch figured out how to make a low-priced pizza that is ready to eat in 30 minutes or so. Ray Kroc figured out how to deliver a cheap, fast meal with a uniform taste at McDonald’s. Once they settled on their game plans, they took their shows on the road and started selling franchises to entrepreneurs who use their formula, marketing and logistical support to spread the brand.
McDonald’s is perhaps the best example of franchising success. The company currently has around 13,000 stores across the country, mostly owned and operated by franchisees. By relying on them, McDonald’s avoided spending the hundreds of billions of dollars it would have taken to fund construction of these stores on its own.
A McDonald’s franchise will cost the owner several million dollars. A Culver’s costs as much as $7 million and a Ruth’s Chris Steak House is in that ballpark. Variations of the Hilton and Marriott hotel chains can run $30 million or more. A Planet Fitness gym will cost $1.5 million to $5 million. Real estate expenses vary a lot and can have a big impact on the overall budget.
Start-up costs for Little Caesars run $400,000 to $550,000 for a typical 1,500-square-foot store. Bryan Ketelhut (pictured), the company’s vice president of franchising, said it prefers partners with food experience, but having none isn’t a deal breaker. Husband-and-wife teams are common. They need liquid assets of $200,000 and a net worth of $400,000. They can get a store running in as little as six months. Before opening, they’ll spend six to seven weeks in a store, learning how to make pizzas and learning how to run a business.
A Little Caesars franchisee’s average annual net profit varies significantly, but is often estimated in the range of $60,000 to $90,000, with profit margins between 14% and 18%. That’s calculated from potential annual sales of $750,000 to $1 million, depending on the store’s location and efficiency. The low-cost, carry-out business model helps keep staffing and overhead costs down, contributing to profitability despite the product’s relatively low price point.
Plus, the model is scalable; many franchisees own multiple stores. And they’re sellable, as other franchisees are always looking to expand.
But not all franchises thrive. Remember Blockbuster? Quiznos ran up against Subway in the sandwich business and opened around 4,700 stores, but now only about 300 exist. Weight Watchers is battling new weight-loss drugs.
Industry watchers say about 4% of franchises fail within five years of opening. That is markedly better than the 50% fail rate for all startups, which explains the lure of franchises. Well, that, and the smell of fresh pizza.
The billion-dollar business of burgers and pizza
You can make a lot of money owning a franchise. My stockbroker reminded me of this in a roundabout fashion a few years back when he told me he and some pals were flying to Mexico to shoot quail. They didn’t envision any problems hauling guns and ammo aboard the executive jet because it was owned by one of those pals, who’d bought it to fly around to some of the 50-plus Burger King restaurants he owned. Restaurant Brands International data from 2023 shows a single Burger King spot takes in about $205,000 in profits during a typical year.
There may be more money in developing franchises. Mike Ilitch opened his first Little Caesars pizza shop in suburban Detroit in 1959 and, with his wife and co-founder Marian Ilitch, grew it into the nation’s third largest pizza chain.
Before he got into the pizza business, Ilitch played baseball with Detroit Tigers farm teams. After he built his business, he bought the Tigers. He also bought the Detroit Red Wings. He died in 2017 and left the business to Marian, who is one of the nation’s wealthiest women entrepreneurs with an estimated fortune of $7 billion.
Ray Kroc, perhaps the biggest titan in the franchising world, likewise was enamored of baseball and used his profits from building McDonald’s to buy the San Diego Padres.
If the Iowan founders of Pizza Ranch or Maid-Rite own any sports teams, we haven’t heard about it. Casey’s General Stores of Ankeny relied heavily on franchisees in its early days to build its network, but the company no longer franchises locations.
By the way, the jet-setting Burger King owner spent a good deal of the flight to Mexico grousing that corporate had recently told him to retrofit each of his 50 stores with playgrounds for $500,000 each. That added up to a pretty big dent in his wallet, which franchise owners occasionally face.
