Just a general warning for anyone considering buying a pizza franchise. Good friends of mine are now bankrupt and have lost their home after selling their pizza store at below market value. They had no choice as they were making a loss, largely due to the $4.95 pizza war between Pizza Hut and Domino's, as well as encroachment by a new store set up in their area. The general advice for would-be franchisees is to go in with both eyes open but the important information isn't disclosed to purchasers. There are no readily available figures on the profitability of all stores. You would have to phone each individual store to get this information. Franchisees have taken YUM, the parent company to court

http://www.smh.com.au/national/disenfranchised-angry-pizza-hut-stores-launch-class-action-over-price-war-20140823-1078aq.html

but it looks like they've lost the first round. YUM would have an iron-clad contract but I'm surprised that the courts have found in favour of YUM considering that their price war has sent many store owners to the wall. Unconscionable conduct doesn't seem to come into it. The start up and ongoing costs are horrendous. The average store is $300,000 to $400,000. The marketing and franchise fees, malfunctioning oven & till repairs, rent, wages etc cost thousands. Add bank interest to this and it's next to impossible to make a profit which is enough to live on. Royalties are based on gross sales, which have marginally risen since the $4.95 promotion but franchisees would be better off not selling the $4.95 pizzas at all. At one of the last meetings the owners attended they were told the $4.95 promotion was permanent. How exactly does a prospective franchisee practise due diligence to avoid something like this happening? Profit and loss figures can be fudged. Bank statements, assuming you can get these, mightn't tell the full story either. What are the true figures for franchises in Australia and how does the average punter get to find out about them?

AngleBris, take out any criminal element from the equation, anyone contemplating a "franchise" should be very very careful. Generally they are designed to benefit the franchiser first and foremost, and the franchisee second. Remember the franchiser makes his money from sell businesses not the product. I think for every successful franchise there are many unsuccessful ones. The entry and on going costs seem to be generally way out of proportion to similar non franchised businesses.
There are advantages in these businesses, with name recognition, business set up help, advertising, product sourcing etc. At the end of the day its up to the operator to make a success of the venture. Unfortunately many who commit to franchises do so lacking business skill and very much with their eyes shut.
Interested to know what business experience your friends had before hand.

Buyer beware jumps to mind!

There is also the issue of due diligence. There are only eight key issues to consider when evaluating and business investment. Product, Market, Chanel, Service, Customer, Supplier, Regulator and Competitor.

If you miss the significance of even one item, you are gone!

Very sad for your friends but they seem to have failed across the board. Their final and most devastating mistake was rule No 1, never, never, ever use your family home as equity.

Like so many who should just not be in business it's the old story. To get some people into a small business, just give them a big business to start with?

AngleBris, I don't know fully the pizza business, although I do suspect the $4.95 pizza is way less than half their throughput, in volume, as the majority of pizzas are delivered.

In any fast food retail business, if your cost of goods exceeds 25%, a prospective buyer should see a red flag.

These chain store outlets work on sheer volume, simply because there are too many mouths to feed so as to say. I doubt I would ever buy one myself. As for risking ones home, sometimes there is no other option,other than to walk away. It just further highlights the risks small business owners take on a daily basis.

BTW, the best franchise pizza shop was in Caboolture, where I had a butcher shop. That was back in the mid 90's and pizzas on special were $4.95.

Too many red flags if I was considering the business.

Is this thread the "Kiss of death" shortly after this, I see the local 'Dominos' franchise closed down. You get what you pay for, I'm not big on pizza but those $5 jobs are worth 5 bucks, no more. My partner now and then gets one from the local Italian place, been there for about 40 years very nice for $16 to $21. "T" only likes 'The Hawaiian' ham and pineapple.
My favorite take-away is kebab about $9, good value. Funny story, we always go to the same kebab shop, we know the guy there, one day while we are waiting my partner said to him "You got beef, and chicken kebabs , I wish you had pork kebabs, I love pork." I said to her "Ah, he's Muslim" she said "I know, you don't have to eat it, you only have to sell it, I'll eat it for you" He laughed.