How To's
Here’s The Real Cost of An IHOP Franchise
Pancakes are a global favorite. And it isn’t surprising that there are hundreds of people finding ways to get an IHOP franchise. Lucky for you, we have gathered the most important information that could help you decide if this is the right business.
Franchise Description
The IHOP business started in 1958, and they opened opportunities for franchising two years after. The parent company is Dine Brands Global Inc., while the franchisor is IHOP Franchisor LLC.
They offer several franchise programs, such as a full-service restaurant that includes their world-renowned IHOP pancakes and other menus for the entire day. These restaurants are located in free-standing buildings or in other traditional commercial spaces. Likewise, they offer new IHOP concepts for fast-casual or quick-serve restaurants where it could be found in schools, hospitals, or even in-plant food facilities.
Franchisee Training
The training for new franchisees is composed of two parts. One is a six-week program where they would train for about 45 – 50 hours per week. The second part is a two-day workshop, typically held in major markets.
The first part of the program includes foundational operation skills training and IHOP brand standard operating practices. Take note that they have their own IHOP Academy, a learning management system.
The trainees must successfully pass all the tests, both online and practical. This includes an on-the-job performance and management training program. There’s also an additional IHOP-approved food safety certification program.
There will be additional training offered by the franchisor. The franchisees are not compelled to attend unless the franchisor believes it is necessary.
Territory
Once a franchisee signs the agreement, they are allowed to operate one restaurant at the specified location. If the franchisee is compliant with the terms, the franchisor will not operate another IHOP within the exclusive area.
Franchisee Obligations
The franchisee should participate in the daily operations of the restaurant. Or, if this is not possible, an IHOP-trained manager should be in place.
The franchisees must attend and complete the training program and could only miss it if the franchisor waives the requirement. In case it will be owned by a corporation, the franchisor requires one person to own directly or indirectly 51% or more of all outstanding stock.
Term of Agreement
The initial franchise term for the traditional restaurant is equal to the term of lease or 20 years. If the franchisee has met the standards, this could be renewed for 10 years.
If the initial term is less than 10 years, but the franchisee is compliant, they could have a Special Renewal Term. The initial term and the Special Renewal Term should not exceed 25 years.
Financial Assistance
The franchisor may finance a portion of the initial franchise fee. There are certain cases that the franchisor may agree to finance the full initial franchise fee.
Did You Know?
Before we look into the total cost of having an IHOP franchise, let’s talk about some of the company’s most interesting facts.
The Perfect Pancake Recipe Was Made in Their Mom’s Kitchen
Who would have thought that people around the globe would go crazy for pancakes that were perfected in a humble home? Al Lapin Jr was said to create the perfect recipe at their mom’s very own kitchen.
They Updated Their Menu Design and Increased Their Sales
Sometimes, all it takes is to fine-tune your menu design to get more profit. That’s what IHOP did in 2013. The older version had so many texts and didn’t have enough impact. When they changed it, the sales increased by 3.6%.
Free Pancake Day Raised $16 Million for Charity
Back in 2006, IHOP launched the first National Pancake Day. While the pancakes are free, they ask their customers to donate to the Children’s Miracle Network Hospitals or other local charity. This proved to be a success when they raised multi-million dollars!
Massive Restructuring Happened in the 80s
IHOP had its roadblocks back in the day. In the 80s, they needed to have some major restructuring and even closed some of its branches. But that didn’t stop them from improving their operations. And as we all know, there’s no stopping them now.
IHOP Owns Applebee’s
IHOP had shown the world its power when they acquired Applebee’s for $2.1 billion.
Your Investment
Below is the estimated IHOP franchise cost. This shall give you an idea if your finances fit the requirements.
| Name of Fee | Low | High |
|---|---|---|
| Location Fee | $15,000 | $15,000 |
| Initial License Fee (less $15,000 Location Fee paid, for a total of $35,000) | $50,000 | $50,000 |
| Real Estate | $300,000 | $2,500,000 |
| Construction | $450,000 | $2,300,000 |
| Major Equipment and Fixtures | $200,000 | $600,000 |
| Smallware Package/Opening Order | $15,000 | $30,000 |
| Signage | $15,000 | $100,000 |
| Inventory | $10,000 | $30,000 |
| Working Capital | $10,000 | $60,000 |
| Insurance | $30,000 | $75,000 |
| On-Location Assistance | $0 | $16,000 |
| Site Approval Costs | $1,000 | $50,000 |
| Impact Study | $4,000 | $6,000 |
| Opening Training Support Fee | $0 | $16,500 |
| POS Setup, Training and Support Fee | $3,500 | $7,980 |
| Transaction Services /Oracle Hospitality eCommerce Integration Cloud Services (per year) | $300 | $500 |
| Europay, Mastercard, and Visa (EMV) Point to Point Encryption (P2P) Services | $1,000 | $2,500 |
| Wi-Fi Services (per month) | $90 | $400 |
| Kitchen Display System | $15,000 | $20,000 |
| Server Tablets | $0 | $20,000 |
| On-Line Ordering (per month) | $91 | $91 |
| Gateway Processing Fees (per month) | $66 | $66 |
| Digital Products Service Fee (per month) | $0 | $350 |
| Implementation Fee | $250 | $500 |
| POS System | $20,000 | $30,000 |
| No Wait (per month) | $0 | $69 |
| Customer Relationship Management (CRM) Fee (per month) | $0 | $150 |
| Catering (per month) | $0 | $150 |
| Initial Additional Training Expenses | $4,000 | $7,000 |
| Supply Chain Co-op Stock Purchase | $0 | $100 |
| Food Safety Evaluation Reaudit Fee | $0 | $1,220 |
| Additional Funds – 3 months | $16,500 | $85,250 |
| Miscellaneous | $5,000 | $26,000 |
| ESTIMATED TOTAL* | $1,150,066 | $6,037,673 |
Other Costs
| Type of Fee | Amount |
|---|---|
| Royalty | 4.5% of total gross sales. |
| National Advertising Fee | 3.5% of total gross sales. |
| Local Advertising Fee | There is currently no required local advertising fee. |
| Cooperative Advertising | Varies depending on the franchisee’s decision to participate. |
| Additional Training Fee | $5,000 per person per restaurant. |
| Additional Assistance Fee | $375 per day per person, plus reasonable transportation and living expenses. |
| Compliance Audit Fee and Interest | Interest on the understated or unpaid amounts due to the franchisor at the highest rate allowed by law plus cost of audit. |
| Delayed Approval Fee | $170 per day |
| Delayed Development Fee | $350 per day. |
| Dine Brands Restaurant Technology Support Center (Help Desk) | $1,600 to $1,800 per year, subject to change |
| Digital Products Service Fee | $0 to $350 per month |
| Implementation Fees | $250 to $500 |
| Customer Relationship Management (CRM) Fee | $125 to $150 per month per restaurant. |
| Insurance | Amount of unpaid premiums |
| Late Fee | Highest rate permitted by law or 1.5% per month, whichever is less. |
| National Gift Card Program Charges | 15% of the redeemed portion of gift cards sold in the national program, but the amount may change. |
| On-Location Assistance Fee | $0 to $16,000 |
| Renewal Fee | $10,000 for General Renewal Term; Amount to be negotiated for Special Renewal Term. |
| Supplier/Distributor Approval | Costs of sample testing plus other actual costs, such as facility inspection. |
| Transfer Fee (Franchise Agreement) | $7,500 plus $5,000 training fee per restaurant |
| Transfer Fee (Multi-Store Development Agreement) | $2,500 |
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